Pros and Cons of Investing in CG Power

The share price of CG Power is in the news.

Investors are paying more attention to the stock that usual after Prime Minister Modi mentioned the company's semiconductor plant.

He said, the company's plant had commenced its pilot phase and commercial chip production is expected to start later this year.

This is certainly excited investors. After all, semiconductors is a hot sector on Dalal Street these days.

In a recent filing with the stock exchanges, the company said the following...

• "With this launch, CG Semi becomes one of India's first full-service OSAT providers, offering solutions across both traditional and advanced packaging technologies.
  
  This marks a major step in strengthening India's semiconductor capabilities and supporting the country's goal of becoming self-reliant while also serving global markets."

The stock has certainly been a wealth creator over the years but over the last one year, the stock has not set the market on fire.

Is that about to change?

In this editorial, we will consider the pros and cons of investing in the stock of CG Power and Industrial Solutions.

Pros

#1 Strong Electrical Engineering Business

CG Power & Industrial Solutions, historically known as Crompton Greaves Ltd, has a core focus in power and industrial systems.

It manufactures power and distribution systems, covering design, engineering, and implementation.

The company has many decades' experience in this business and has established a strong position in the industry.

CG Power reported a 40% YoY growth in order inflows reaching Rs 146.84 bn for FY25. Its unexecuted order backlog as of 31 March 2025 was Rs 106.31 bn, up 66% YoY.

Segment-wise, the industrial systems order intake for FY25 was Rs 68.91 bn, up 20% YoY, and the power systems, order intake was Rs 66.35 bn, up 45% YoY.

The company recently secured its highest single order of Rs 6.41 bn from Power Grid Corp.

The board has approved a greenfield expansion for 45,000 mega volt-amperes (MVA) power transformer capacity for Rs 7.12 billion (bn), increasing the overall capacity to 85,000 MVA by FY28.

The switchgear business is also doing well. The company operates world-class switchgear manufacturing facilities at Nashik and Aurangabad in Maharashtra. The company is planning a capacity expansion at Nashik for Rs 1.55 bn.

In the switchgear business, the company expanded its presence into the railway metro segment by securing a 33kV AIS order for projects in the Bhopal, Indore, and Agra metros.

#2 Semiconductor Expansion

CG Power and Industrial Solutions entered into a joint venture with Japan's Renesas Electronics and Thailand's Stars Microelectronics to set up an Outsourced Semiconductor Assembly and Test (OSAT) facility in India.

The JV is 92.3% owned by CG, with Renesas and Stars Microelectronics holding equity capital of 6.8% and 0.9%, respectively.

Renesas will provide advanced semiconductor technology and expertise. Stars Microelectronics will provide both technology for legacy packages and training and enablement.

The Union Cabinet approved the project back in 29 February 2024. The JV plans to invest Rs 76 bn over a 5-year period, which will be financed through a mix of subsidies, equity, and potential bank borrowings as required.

The manufacturing facility has been set up in Sanand, Gujarat, with a capacity that will eventually ramp up to 15 m units per day.

It will focus on packaging, assembling, and testing semiconductor chips for various applications, including consumer electronics, automotive, industrial, and power sectors.

Cons

#1 Capital Heavy Business

The company is involved in capital heavy businesses i.e., manufacturing industrial systems, power systems and now semiconductors.

All these businesses require significant capital investment which may require debt funding. While the company is debt free at the moment, this may not always be the case in the future.

The market is convinced of the management's capability due to a combination of good execution in the past and the company's standing and reputation.

However, this does not guarantee future profitability.

Execution risks in these businesses are significant and if the company were to face an unexpected challenge, investors could be left disappointed.

While the company's balance sheet is strong enough to implement the ongoing expansion efforts, generating sufficient cash flows over the long term will be a challenge.

#2 High Valuations

The stock price of the company is currently trading at high valuations. Investors are paying up for high growth in the future.

This will be a big concern for investors if the expected growth fails to materialise.

No matter how good the fundamentals of a business may be, investors should always pay close attention to the valuations of the stock.

Valuations are measured with the help of the price to earnings (PE) ratio and the price to book (PB) ratio. At the time of writing, the stock's PE ratio is 116 and the PB ratio is 16.5.

About CG Power

CG Power and Industrial Solutions has been part of the Murugappa Group since 2020. The company, headquartered in Mumbai, is an 86-year-old engineering conglomerate and a leader in the electrical engineering industry.

It's engaged in the design, manufacturing and marketing of products related to power generation, transmission, and distribution & rail transportation.

The company has two business divisions namely industrial systems, and power systems. The former caters to motors and drives, and railways, whereas the latter caters to power industry and is used in transformers switchgears and allied products.

To know more about the company, check out CG Power's financial factsheet and its latest quarterly results.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Investors should evaluate the company's fundamentals, corporate governance, and valuations of the stock as key factors when conducting due diligence before making investment decisions.

Happy investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...