Vedanta plans to invest $15 bn to setup display, chip fabs in India

The Vedanta Group is planning to invest $15 billion over the next 5-10 years to make displays and other semiconductor chips in India. The investment will be made through Avanstrate Inc., a glass substrate manufacturer in which Vedanta has a controlling stake.

The investment will be made in a phased manner and will comprise an Integrated Display Fab facility and a separate semiconductor facility, Akarsh Hebbar, managing director of Avanstrate Inc, told Mint in an exclusive interaction. Integrated Fabs cover almost the entire manufacturing process of a chip and include two or three factories that take a “sand-to-brand” approach towards making semiconductors.

Avanstrate will start with assembly, test, marking and packaging (ATMP) and outsourced semiconductor testing (OSAT) units, and subsequently build full-fledged fabs. In the first phase, the company will invest $5-10 billion, leveraging the government’s production linked incentive (PLI) scheme for semiconductor manufacturing in India, according to Hebbar.

The Indian government rolled out its PLI scheme for semiconductors on December 16. While the framework of the scheme is still being worked out, the government plans to provide financial support of up to 50% of the project cost to firms.

Avanstrate will start with the Integrated Display Fab that will be built in four phases, while the semiconductor plant will be built in two phases. In the first phase, the company will target a capacity of 60,000 panel sheets and 10 million displays. Display panels are cut out of large glass sheets, which are called panel sheets. 

“Realistically speaking, we should come up with the larger panel fab and the semiconductor fab by 2025-26. The smaller factories, like OSAT, may come by the end of 2024,” said Hebbar. “This is phase 1, phase 2 will likely start about eight to nine years later,” he added.

Avanstrate is in talks with various states that have experience in electronics including Gujarat, Tamil Nadu, Maharashtra, and Haryana. These states provide incentives over and above the central government’s schemes. Hebbar said proximity to ports, railways, etc., will be key considerations for setting up the units. “It’s an initial phase. We want them to come forward with the best proposal,” said Hebbar. He added that initial conversations have been good and substantial packages are expected.

To be sure, Vedanta isn’t the only company speaking to these states. In November, Reuters reported that the Tata Group has been in talks with Tamil Nadu, Karnataka and Telangana to set up an OSAT plant. “At the Tata group, we have already pivoted into a number of new businesses like electronics manufacturing, 5G network equipment as well as semiconductors, in all probability,” N. Chandrashekharan, chairman of the Tata Group, said in an industry event in August.

Further, companies in India have tried to build semiconductor manufacturing bases in the past but in vain. The Vedanta Group, for instance, was reportedly formulating a Rs. 6,000 crore investment for an LCD manufacturing unit in Noida in 2018. Likewise, the Reliance Group and Videocon were also mulling setting up fab units, according to multiple reports that cited unnamed sources.

That said, the current PLI scheme is at least the third time that the country is trying to attract chip firms. The government said last week that investments worth Rs. 1.70 trillion are expected for over 20 units, including two chipmakers and two display manufacturers who will set up units over the next four years.

Hebbar is unfazed. "Many companies had a very outside-in look at this entire thing. They were looking at India and skimming the states in terms of whether there’s ready water, electricity, etc...We’re finding a lot of traction in places where they’re talking about high fidelity, subsidised rates for electricity, proximity towards ports, and also to water bodies which will give us 24x7 water structure in very clean and economical ways,” he asserted.

Displays and processing chips make up the largest part of the bill of materials (BOM) costs in mobile phones, and even higher in TVs and monitors. BOM cost is the combined cost of all the components that go into making a device.

Hebbar said glass and processor fabs will bring 50% of the value chain into India. The company has been in discussion with its partners in Taiwan and Korea. “This will bring that electronic cluster play into India. It is imperative that companies that supply to us, are co-located, which will attract the whole industry in our country,” he added.

About 75% of the initial demand is expected to come from domestic consumption, said Hebbar. Glass, for instance, will be consumed by automotive, television, mobile phones and many other industries, including the military. On the other hand, semiconductor chips in 28nm-65nm nodes will be used in low-end smartphones and feature phones, along with appliances, CCTV cameras and more. “We’re targeting the consumer segment, but the applications of these chips could be varied,” he said.

Nodes refers to the technology node, also called process node, which is used to manufacture a chip. This size determines the efficiency of a chip and the amount of power it can generate. The most advanced chips used by companies like Apple, Samsung and more in their high-end phones today, are built on 5nm nodes by companies like the Taiwanese Semiconductor Manufacturing Company (TSMC), Samsung Semiconductors and more.

“You will see the US putting $50 billion, Europe putting $42 billion etc., but those are all in the latest 7nm, 9nm chips, which India doesn’t need. India is in the unique position to get those 28nm, 65nm chips, and $10 billion is more than enough for it,” said Hebbar. “And for display fabs we have about $3.2-4 billion, which is again more than enough. We’re getting 50% from the Centre; we’ll get more from the states, and I think they’re doing a brilliant job in acting fast,” he added.

Industry experts concur that India needs to manufacture chips locally. 

According to George Paul, chief executive officer of the Manufacturers Association of Information Technology (MAIT), an industry body, “India has a large domestic market where we have products specifically designed for India, like a set-top-box, surveillance cameras, UPS, etc. These are all products that will be consumed in hundreds of millions in India."

"When you have that kind of opportunity, you can design a product around an India-designed chip, which will give rise to an Indian semiconductor company,” he concluded.