Stocks to Ride India's Semiconductor Opportunity 

Dear Viewers,

The chip gold rush is here.

Qualcomm Inc., a global semiconductor giant, has recently announced plans to outsource the manufacturing of semiconductor chips in India.

For an investment of Rs 1.26 trillion, the cabinet has approved three semiconductor plant proposals - two in Gujarat, and one in Assam.

You would have already seen the names of Tata group companies (Tata Electronics and TSAT), CG Power, PSMC (Taiwan), and Renesas (Japan) splashed across the media.

It is said that global manufacturing companies are keen for an investment in semiconductor manufacturing with proposals worth over Rs 2.5 trillion. So, there could be more announcements in the offing.

While we had capabilities in chip design, India would be opening a new chapter of chip fabrication now.

As they say, a chain is only as strong as its weakest link.

The need to break away from China and other geographies for chips was evident as the entire global supply chains were clogged on account of chip shortage post pandemic. The global auto and electronics industry's growth plans and targets were postponed.

Just like in the defense sector, the reduced dependence on chip imports will be a big positive.

Chips find applications in critical industries like defense, aerospace, drones, and communication networks.

So, having domestic production is a venture that should be undertaken sooner than later for the fastest growing Indian economy.

So coming back to implications of recent announcements...

I do not know yet how the economics for direct players making these investments will work out.

But this could open multiple opportunities in the associated end industries (demand side) and supply side (suppliers to chip manufacturing) for India.

End industries include the likes of EV, telecom, defense, electronics, power electronics, auto, medical devices, communication equipments and so on.

And then there are companies on the supply side. A case in point is Samsung Electronics that has unveiled semiconductor R&D facility in Bangalore recently.

Do check the link below the video to get the list of listed companies in the semiconductor space and ecosystem. Some of these names include names like ASM Technologies, Dixon, HCL Tech, MIC Electronics, RIR Power Electronics, SPEL semiconductors, and more.

To be honest, this is a good start but not an exhaustive list.

There are a few more unusual suspects that I believe deserve your attention and a place on your watchlist.

The first is Ami Organics.

Ami Organics has 55% stake in Baba Chemicals which makes niche semiconductor chemicals. They claim to be the only makers in the country in their product category.

Ami Organics already is a reputed name in the chemical industry. With this acquisition, it has gotten a strong foothold in the semiconductor industry with high entry barriers.

The management expects that it can help Baba Chemicals scale up by five to six times. The margin in the acquired entity is strong at about 40%. Besides, it makes Ami's position stronger in electronic chemicals industry.

The stock of Ami Organics witnessed insider buying worth Rs 100 m from the open market. The stock was acquired at an average price of Rs 1,163 per share and is trading at Rs 1219.

The second candidate is Chemcon Specialty Chemicals. The company makes a chemical HMDS, predominantly used in pharma industry.

It claims to be the only manufacturer of this chemical in India and third largest worldwide. Besides, it boasts of global and domestic leadership in two other chemicals.

Interestingly, high purity HMDS finds applications in semiconductor industry and electronic chemicals. The company has applied for testing this for semiconductor applications.

This might be a time taking process and still in a speculative zone. But a positive result could give company a breakthrough in the semiconductor industry.

And then there is Praj Industries. Among the multiple sunrise industries, it is targeting to grow in, semiconductor is one. Under its division Hi Purity System, it provides systems and tech to produce high quality water for clients in pharmaceutical, biotech, cosmetics, and wellness sector.

It also finds applications in semiconductor industry. In fact, the company booked its first order in the semiconductor sector for ultra-high purity water in FY23.

Another semiconductor ecosystem company is Polymatech Electronics. The company has plans to get listed soon.

Set up in 2007, it was the first semiconductor chips manufacturer in India.

The company designs, makes and supplies opto-semiconductor chips and luminaries to a wide range of industries, including lighting, medical devices, data transmission, and specialised lighting.

The company plans to inject US$ 1 bn into expanding its manufacturing capacity and establishing new units by 2025. The company aims to expand capacity 10 times. Again, do check the link below the video for more details on Polymatech.

Do note that no stock included in this article implies a view of the respective companies. But it would be good to have these in your watchlist as India's semiconductor flight takes off.

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Thank you for watching. Goodbye.