Semiconductor to add Rs 3,500 crore to CG Power sales; downgrade Keynes Tech shares: InCred

InCred Equities in its latest note said the semiconductor unit that CG Power and Industrial Solutions will come up with the joint venture partners Renesas and Stars should contribute about Rs 3,000-3,500 crore to its annual sales. According to its initial analysis, InCred said the average selling price of a 36-bit microelectronics should be around $0.6 per chip when CG Power starts its OSAT plant.

Assuming a 15 per cent cost for OSAT, coupled with production capacity of 9 million chips per day, this should contribute Rs 3,000 crore to CG Power’s top line. "However, one should note that CG Power is setting up a capacity of around 15 million MCU units per day whereas the current production level of Renesas is around 9 million units per day. "Obviously, this could increase in the coming years with the advent of ADAS in automobile and Internet of Things (IoT)," InCred said.

A microcontroller (MCU) is a small computer on a single integrated circuit that is  designed to control specific tasks within electronic systems. It combines the  functions of a central processing unit (CPU), memory, and input/output interfaces,  all on a single chip.  Renesas ships more than 3.5bn microcontrollers or MCUs per year, with  approximately 50 per cent in the automotive segment and roughly 20 Renesas MCUs in  each automobile, while the other 50 per cent is in other key segments like industrial, IoT,  and infrastructure.

Advanced powertrains, like for instance, BYD 8-in-1 powertrain coupled with  Advanced Driving Assistance System (ADAS), are driving the growth for  microcontrollers, InCred noted.

Keynes Technology share price

That said, a notable absentee was Kaynes Technology. InCred has downgraded this stock to 'HOLD' due to a significant run-up in the stock price & unfavourable risk-reward. InCred suggested a target of Rs 3,120 on the scrip.

"Kaynes Technology is yet to receive approval from the government for its semiconductor unit which, we believe, is the key overhang. Margin expansion is difficult, given its focus on new customers and expansion to new businesses like PCB and OSAT, which are likely to report losses initially," it said.