Tata Sons' electronics bet crosses $1.3 billion

The Tata Group holding company last month invested ₹1,499 crore in Tata Electronics Ltd, its phone assembly and semiconductor venture, bringing its total investment in the business to $1.3 billion. This also makes Tata Electronics the third Tata Sons subsidiary—the others are Air India Ltd and Tata Digital—to receive over $1 billion from its parent in the last four years. Tata Sons' investments in the three businesses now total $11.1 billion, a Mint review of the filings of the three subsidiaries showed.

Tata Sons’ latest annual report said it has invested ₹45,347 crore ($5.1 billion) in Air India, since acquiring the state-owned airline in January 2022. Tata Digital, its e-commerce business comprising BigBasket, Tata 1mg, Croma and Cliq, received nearly $4.7 billion ( ₹42,121 crore) since its inception in March 2019.

New investments in emerging businesses are a key focus for the Tata Group, which channels its investments through the group's holding company.

Tata Sons wants to pursue "manufacturing excellence at scale", chairman Natarajan Chandrasekaran wrote to shareholders in the Tata Sons FY25 annual report. Major Tata Sons shareholders include Tata Trusts, the Shapoorji Pallonji Group, and various Tata Group companies.

"At Tata Electronics, we are building a vertically integrated ecosystem for technology hardware and semiconductor manufacturing. It is hard, but that is why it matters so deeply to us," Chandrasekaran wrote. “In the capital-intensive world of technology hardware, I am told this is a good start."

Queries emailed to Tata Sons and Tata Electronics went unanswered.

Since beginning in September 2020, Tata Electronics has invested ₹6,961 crore in its iPhone assembly operations. It also spent ₹1,363.52 crore to acquire Wistron Corp’s plant in March last year, and ₹1,650 crore to buy a 60% stake in Pegatron’s India facility. Additionally, ₹50 crore was invested in the semiconductor subsidiary. These amounts total approximately $1.3 billion in investments by Tata Sons in Tata Electronics. The company is India’s single-largest assembler of Apple’s iPhones.

Tata Electronics last year entered chip manufacturing, announcing it will invest over ₹1,18,000 crore ($13 billion) to set up two semiconductor fabrication plants in Gujarat and Assam. The Gujarat plant, at an investment of $11 billion, is in partnership with Taiwan's Powerchip Semiconductor Manufacturing Corp.

Tata Electronics reported revenue of ₹66,601 crore in FY25, behind Air India, which ended with ₹78,636 crore, and more than twice Tata Digital's ₹32,188 crore, according to Tata Sons’ latest annual report. The electronics business ended with a ₹70 crore loss, much less than the ₹10,859 crore loss from aviation and the ₹4,610 crore loss from e-commerce.

This is no small feat, as Tata Electronics’ ₹66,601 crore revenue surpassed Titan’s ₹60,942 crore, and close to Tata Power Ltd’s ₹66,992 crore. To be sure, Tata Electronics remains a loss-making business, unlike the profitable businesses of Titan and Tata Power. Despite Tata Electronics cutting losses by 92% to ₹69.7 crore ($7.8 million), down from ₹825 crore ($93 million) a year ago, the iPhone assembly margins remain wafer-thin for vendors like Foxconn.

To be sure, production-linked incentives (PLIs) for smartphone assembly expire in March next, and Tata Electronics is yet to spell out its plan to attain profitability. Tata Sons chairman Chandrasekaran also serves on the board of Tata Electronics.

Industry stakeholders, however, are not concerned.

"The smartphone PLI has seen Dixon become a large company in India, while Kaynes and Syrma are now on the path of growth," said Ashok Chandak, president, India Electronics and Semiconductor Association, an industry body. “These success stories have prompted Indian conglomerates to join the field too. Tata has been an early mover, while Larsen & Toubro has set up a dedicated subsidiary for fabless semiconductor engineering. The Murugappa group, too, has ventured into semiconductor testing and assembly—showing the importance of electronics in India's growth over the next decade."

“The primary purpose of the smartphone PLI was to cover for the cost disadvantage that early companies would have had when starting out in India, given that the PLI came when the industry was in its nascent stages. India now has a well-established last-stage assembly ecosystem, and both India and the likes of Apple have gained significantly from it. Now, with component incentives, we're seeing the next tier of value creation that will start to happen, and this will further strengthen the electronics ecosystem," added Ankush Wadhera, managing director and partner, and India leader - semiconductors at Boston Consulting Group (BCG).

Tata Electronics employed 65,647 people. This exceeds the 31,749 in aviation and the 39,088 in Tata Digital.

India produced ₹11.3 trillion ($127 billion) worth of electronics goods in FY25, a 19% rise from ₹9.5 trillion ($107 billion) produced in FY24, making the electronics industry one of the fastest-growing sectors, finance ministry data shiwed. Mobile phone exports accounted for about 18% or $22.5 billion of the share of electronic production. A third of this share of mobile exports was made possible due to Tata Electronics, which generated revenue of ₹62,962 crore ($7.1 billion). Of this, Tata Electronics earned ₹23,462 crore ($2.6 billion) from exports to the US and ₹14,255 crore ($1.6 billion) to Ireland, which is Apple’s European headquarters.

“India does not have a large presence in the value-added parts of the electronics manufacturing industry. Building a chip fab, as well as increasing local value addition through components, both require a significant capital infusion—and Tata Electronics’ ability to raise that from its parent firm is a core strength for the company," said Harshit Kapadia, vice-president at brokerage firm Elara Capital. “It also enjoys the strength of reputation that its conglomerate brings—Apple, for instance, is unlikely to deal with smaller electronics manufacturing firms as it ramps up local assemblies"

Kapadia stated that electronics manufacturing is expected to grow and potentially outperform traditional sectors and indices over the next decade, and that Tata Electronics may see increases in volumes and revenue.

Less than a year after Tata set up its electronics arm in September 2020, Intel Corp’s chief supply officer, Randhir Thakur, joined as a director. Thakur later left Intel and was appointed managing director of Tata Electronics.