What are the prospects given the recent JV in the semiconductor space?

In today’s article, we are going to look at the company which has one of the most interesting turnaround stories. We are looking at CG Power, which provides end-to-end solutions to industries, utilities, and consumers for the management and application of sustainable and efficient electrical energy.

History of CG Power

We shall first travel back in time 100 years to 1919, when the Thapar family established a multinational business in Delhi. This family has established itself over the years in a variety of industries, including paper, power, consumer electronics, industrial solutions, food processing, chemicals, etc.

The group started operating in the electricity industry in 2008 and invested about Rs. 5,000 Cr. to build two power plants in Madhya Pradesh and Chhattisgarh. These purchases were all financed by debt. 

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In this instance as well, the firm recognised that the power industry presents a number of difficulties and that the group was having difficulty servicing the power company’s current debt.

The Thapar family committed their shares to the bankers as collateral for the loan they had obtained from them in an effort to salvage the business.

The Turnaround

After Tube Investment of India (TII) paid Rs. 800 Cr. for a 57% share in CG Power, the tide gradually started to turn. A total of Rs. 1,100 Cr. in haircuts were agreed to by the 14 banks that lent CG Power. Haircutting refers to giving up a portion of the loans in order to use the company’s operations to pay down the remaining debt.

TII is a part of the Murugappa Group of Companies, which also owns businesses such as EID Parry, Carborundum, and Cholamandalam Finance. Known for their strong leadership, this group is also called the “Tatas of the South.”

While CG Power and Industrial Solutions Limited might not have the largest market cap around , it saw an amazing share price growth of 55.81 percent over the last year. Even when looking at a period of three years, the stock surged almost 700 percent. So, we will look at the future plans of the company to understand if the investing opportunity still persists.

Business Segments of CG Power

At CG Power and Industrial Solutions Limited (“CG”), the business operations are spread across two business divisions: Industrial Systems and Power systems.

Industrial Systems

The company manufactures Motors (LT/HT/FHP) & Stamping, Drives & Automation, Railway Products and commercial products. It is the largest manufacturer of Low-Tension motors and the first company to indigenously develop and supply a complete range of IE2, IE3 and IE4 efficiency motors in India.

The company is also a pioneer in making motors for application in hazardous areas with a market share of more than 60%. This segment contributed around 71 percent to the overall revenue in the financial year 2023.

Power Systems

In this segment, the company manufactures a wide range of transformers and switch gears. It is one of the largest manufacturers of Electric Equipment for the Power and Industrial sector, also offering turnkey solutions in Power distribution and generation.

It is the first manufacturer of 132kV Green Transformer in India. It is also a pioneer in bringing Vacuum Technology in India with an ultra-modern Vacuum Interrupter manufacturing facility in Aurangabad. In FY2023, almost 29 percent of the revenue came from this segment. 

Financials Of CG Power

In the fiscal year 2023, CG Power and Industrial Solutions saw a substantial increase in revenue, surging by 27.2% to reach ₹6,972.54 crore as opposed to ₹5,483.53 crore in FY2022. Analyzing a span of four years, encompassing FY2020 to FY2023, the company displayed a  Compound Annual Growth Rate (CAGR) of 10.92% in revenue.

Simultaneously, there was a noteworthy upturn in net profit, experiencing a 26.5% increase from ₹629.61 crore in FY2022 to ₹796.33 crore in FY2023. Although the company has faced losses before COVID, with the acquisition of the company by TII, the company turned profitable. 

In FY23, CG Power and Industrial Solutions maintained favourable financial metrics with a Return on Equity (ROE) of 44.28% and Return on Capital Employed (ROCE) of 42.22%.

Over the last few years, the management successfully overcame the phase of addressing legacy issues. From grappling with severe financial constraints and mounting debts, the company became a debt-free entity with debt to equity ratio of 0.01.

Future Plans Of CG Power

The competitive advantage, domestic and international opportunities, and motivated leadership team of CG Power ought to facilitate the long-term compounding of revenue growth and return.

With a strong balance sheet behind it, CG Power enjoys a dominant market position across all product and market segments. The firm is focusing more on growing the addressable market to new products and markets, which should result in high double-digit top-line growth and returns that dominate the industry.

A 21 percent earnings CAGR (Compounded Annual Growth Rate) for CG Power (300 basis points from exports) was also projected by the firm for FY 23–26, excluding inorganic growth in rail and industrials.

Entry into OSAT through JV

A recent agreement was signed by CG Power and Industrial Solutions, Renesas Electronics Corporation, a leading provider of advanced semiconductor solutions, and Stars Microelectronics (Thailand) Public Co, an outsourced semiconductor assembly and test (OSAT) provider based in Thailand, to form a joint venture for the construction and operation of an OSAT facility in India.

Renesas and Stars Microelectronics will each hold equity capital of roughly 6.8% and 0.9% of the JV, with CG owning 92.3% of the joint venture. In five years, the JV intends to invest ₹7,600 crore. 

In Sanand, Gujarat, the JV will establish a cutting-edge manufacturing facility with a capacity that can increase to 15 million units per day. It will produce a broad variety of goods, from cutting-edge packages like FC BGA and FC CSP to traditional packages like QFN and QFP.

Expansion Capex

The company has incurred a capex of ₹662 crores as on Q3FY24. A plant is being constructed in Ahmednagar & Goa to produce Low Tension Motors which will double the capacity from 10 lacs per annum to 18 lacs units per annum. This project will produce ₹3,260 crores of incremental revenue at full capacity. 

The upcoming Power Transformer plant in Bhopal will increase capacity from 17,000 MVA to 35,000 MVA. This project will have incremental revenue at full capacity worth ₹950 crores.


CG Power and Industrial Solutions has undergone an impressive turnaround in recent years under new ownership. From heavy debts and losses, the company has transformed into a profitable, debt-free entity with strong growth prospects. 

With dominant market shares, a focus on new products and markets, and expansion plans underway, CG Power seems poised for robust growth ahead. Over the next 4 years, management projects a 21% earnings CAGR, excluding any inorganic growth. 

Given the positive outlook, it will be interesting to see whether CG Power can continue its remarkable comeback story. What are your thoughts on the future prospects of this Indian industrial conglomerate? Can it sustain the growth momentum in the long run? Let us know in the comments below!

Written by Nalin Suriya S

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