India's semiconductor ambitions have entered a decisive new phase.
This isn't merely more money; it's a fundamental strategic shift.
For the Murugappa Group, this policy evolution creates differentiated opportunities for two of its companies—CG Power and Industrial Solutions, and Carborundum Universal—that position them differently from ISM 1.0 beneficiaries like Tata Electronics and Kaynes Semicon.
Semicon 2.0 introduces six strategic pillars, with two being particularly consequential for Murugappa Group companies: strengthening the ATMP/OSAT (Assembly, Testing, Marking, and Packaging/Outsourced Semiconductor Assembly and Test) industry, and incentivizing semiconductor equipment, materials, specialty chemicals, and industrial gases. Under ISM 1.0, the government committed ₹76,000 crore and approved 12 projects worth over ₹1.64 lakh crore. Tata Electronics secured a front-end fab partnership with ASML for a $11 billion facility in Dholera, Gujarat, while Kaynes Semicon commenced commercial production at its OSAT facility in Sanand. These were wins, but they were primarily about proving India could attract manufacturing investment at all.
Semicon 2.0 changes the game by rewarding ecosystem players, not just fab owners.
Equipment and materials manufacturers—segments entirely absent from ISM 1.0—now receive dedicated incentives. This policy pivot directly benefits companies that have positioned themselves in the packaging and materials supply chains rather than direct chip manufacturing.
CG Power's semiconductor strategy, executed through two subsidiaries, aligns precisely with Semicon 2.0's expanded scope. CG Semi Pvt. Ltd., a joint venture with Japan's Renesas Electronics and Thailand's Stars Microelectronics, operates OSAT facilities in Sanand, Gujarat. The G1 facility, inaugurated in August 2025, has a peak capacity of 0.5 million units per day. The larger G2 facility, under construction, will add 14.5 million units daily, targeting combined capacity of 15 million chips per day by late 2026. This represents India's first end-to-end OSAT capability, directly benefiting from Semicon 2.0's strengthened support for packaging operations. InvestorPresentations +1
The government has committed substantial support to this project. Approved in March 2024 under ISM, the ₹7,584 crore project receives ₹3,501 crore in central assistance and ₹1,400 crore from the Gujarat state government—65% of the project cost subsidized. This capital support structure significantly improves CG Power's return on capital employed compared to self-funded alternatives. AnnualReports
Beyond packaging, CG Power's chip design capabilities through Axiro Semiconductor Group benefit from Semicon 2.0's dedicated Design IP pillar. Axiro, created from CG Power's acquisition of Renesas' Radio Frequency components business, already generates approximately ₹500 crores annually from chip design services. Semicon 2.0 introduces deployment-linked incentives for tape-outs and IP development, creating new revenue streams that were absent under ISM 1.0. This positions CG Power to capture value upstream in the semiconductor value chain, not just in manufacturing. Transcripts
The Renesas partnership provides crucial near-term revenue visibility.
This contractual offtake commitment—50% of combined G1 and G2 capacity—provides baseline revenue security that most semiconductor startups lack. While the semiconductor segment reported a ₹50 crore loss in Q1 FY27 on ₹94 crore revenue, impacting consolidated margins by 132 basis points, this reflects the cost of building scale rather than structural weakness. As capacity utilization improves, particularly with G2 coming online in Q4 FY27, margins should expand. InvestorPresentations
For Carborundum Universal, Semicon 2.0's inclusion of equipment and materials creates opportunities that simply didn't exist under ISM 1.0. The company has established a dedicated ₹66 crore facility to manufacture components for semiconductor wafer fabrication equipment, with end-to-end capability from high-purity powder preparation to precision machining and cleaning. This facility serves key global OEMs, including Applied Materials. Transcripts
Carborundum Universal has successfully completed this qualification phase, with products approved for serial production by major global OEMs. Serial supplies will commence in FY27, with material revenue generation expected from 2029 onwards. This timeline, while extended, creates formidable barriers to entry. Once qualified, switching costs for OEMs are substantial due to re-qualification requirements, providing Carborundum Universal with sustainable competitive advantages. Transcripts +1
The company's high-purity silicon carbide (HPSiC) business further benefits from Semicon 2.0's materials focus. Carborundum Universal has achieved 5N purity on HPSiC and initiated the technology route for 6N purity, with a pilot-scale manufacturing facility under development. These materials are critical for semiconductor and power electronics applications, positioning the company at the forefront of domestic materials capability development. Transcripts
Semicon 2.0's incentives for specialty materials directly enable this business. Under ISM 1.0, there was no policy support for materials suppliers. Now, manufacturers of critical materials, chemicals, and gases used in chipmaking receive incentives to strengthen the domestic supply chain. This policy alignment transforms Carborundum Universal's semiconductor business from a speculative long-term bet to a strategically supported initiative aligned with national priorities.
The contrast between CG Power and Carborundum Universal reflects fundamentally different business models with distinct risk-return profiles. CG Power's direct semiconductor services model—OSAT operations plus chip design—generates near-term revenue but requires substantial capital investment and execution excellence. The company's consolidated ROCE of 20% and ROE of 14.6% for FY26 reflect strong returns from its core power and industrial systems businesses, which currently subsidize semiconductor investments. The government's 65% capital support significantly improves these returns compared to fully private investment. AnnualReports +1
Carborundum Universal's advanced materials manufacturing model requires extended gestation periods but potentially offers superior long-term margins. The company's ROCE declined from 23.4% in FY24 to 18.1% in FY25, while consolidated ROE fell from 15.5% to 8.8%, partly reflecting semiconductor investment pressure. However, the ₹66 crore initial semiconductor facility represents just Phase-1. Management plans to scale this investment 3-4 times during Phase-2, which will temporarily depress capital efficiency but positions the company for significant ROCE recovery post-FY29 as transformational products scale to 10% of revenue by 2030. AnnualReports +2
The Murugappa Group's dual strategy represents sophisticated portfolio optimization. CG Power offers higher near-term returns with faster revenue recognition through its asset-light, government-supported model. Carborundum Universal provides longer-term strategic positioning in critical supply chains with technology moats created by extended qualification cycles. Both approaches are valid, but they serve different strategic purposes within the group's semiconductor ecosystem.
Compared to ISM 1.0 beneficiaries, Murugappa Group companies occupy differentiated positions. Tata Electronics, with its front-end fab partnership with ASML, focuses on the most capital-intensive segment of the value chain. Kaynes Semicon operates in OSAT, competing directly with CG Semi but without CG Power's integrated design capabilities and Renesas partnership. Neither Tata Electronics nor Kaynes Semicon have significant exposure to the materials and equipment supply chains that Carborundum Universal is targeting.
Semicon 2.0's ecosystem focus creates space for multiple players to succeed. The government expects the programme to attract investments of around ₹4 lakh crore and generate semiconductor production worth nearly ₹2 lakh crore during the scheme period. India's semiconductor market, currently estimated at around $50 billion, is expected to grow beyond $100 billion by the end of the decade. This expanding market creates opportunities for companies across the value chain, from fabrication to materials.
For CG Power, the competitive advantage lies in its integrated approach—combining OSAT operations with chip design capabilities through Axiro, backed by strong partnerships and government support. For Carborundum Universal, the advantage comes from technical specialization in high-purity materials and advanced ceramics, where the 4-6 year qualification cycle creates barriers to entry that will protect margins once serial production commences.
The success of Murugappa Group's semiconductor strategy will depend on execution excellence and strategic patience. CG Power faces operational challenges in ramping G1 to full capacity while simultaneously preparing G2 for commissioning. Yield optimization, talent acquisition, and customer qualification—particularly in the automotive sector with its stringent quality requirements—will determine the pace of margin expansion beyond the current 14.7% consolidated EBITDA margin. Transcripts
Carborundum Universal must navigate the Phase-1 to Phase-2 transition, where scaling semiconductor capex from ₹66 crore to potentially ₹198-264 crore will temporarily depress capital efficiency before revenue materializes in FY29. The company's strong ceramics and refractories segment (₹1,268 crore FY26 revenue with 30% engineering ceramics growth) provides the financial foundation to support this transition, while diversification into aerospace and defence (STANAG Level 4 qualified armour) and clean energy (SOFC/SOEC) applications mitigates risk through counter-cyclical demand streams. AnnualReports +2
India's semiconductor journey has moved beyond the question of whether the country can build fabs. Semicon 2.0 addresses the harder, more strategic question of whether India can own the entire value chain. The Murugappa Group, through CG Power and Carborundum Universal, has positioned itself to answer this question affirmatively—not by competing directly in front-end fabrication, but by building critical capabilities in packaging, design, and materials that will determine India's long-term semiconductor sovereignty. The policy shift from supporting only chip manufacturers to the broader ecosystem hasn't just created new opportunities; it has validated the Murugappa Group's differentiated approach to semiconductor value creation.
