MG Motor plans to Indianise the company, divest majority stake to Indian partners and raise over Rs 5,000 crore

With its FDI proposal stuck with the Government of India for several years now, MG Motor India, the British subsidiary of China's largest car maker SAIC Motor Corporation has decided to divest majority stake in the company to Indian investors.

The move will enable MG Motor India to sustain its domestic operation in partnership with local players. The negotiations for this move are likely to be concluded later this year. 

The process of stake sale is likely to be consummated in 2023 and it may eventually lead to a public listing five years from now, said the company's top executive on May 10.  

Autocar Professional had exclusively reported that the company is in talks with JSW Group for dilution of stake on April 24, 2023.

Rajeev Chaba, the CEO Emeritus of MG Motor India told media persons in Delhi that the company has defined its long-term plan till 2028. As part of its 2.0 and 3.0 strategy, the company is in the process of Indianising itself across various aspects including ownership, board structure, manufacturing footprint and localising of supply chain.

“The plan is to Indianise the operation. The first step will be announced in 2023. We plan to dilute our shareholding in two to four years. We want to Indianise the board, management, shareholding and supply chain. The majority stake in the coming years will be owned by an Indian partner,” said Chaba.

Elucidating its new long strategy, Chaba said the 2.0 plan is for the period of 2023 to 2025 which entails expansion of capacity from 70,000 units per annum to 1.2 lakh units. With the portfolio of five products including the new Comet EV, the company is aiming to more than double its volumes to 80,000 units to one lakh units and thereby look at breaking into profit to ensure a decent valuation for the company.

Once the new investor is brought on board later in 2023, the funds raised from divestment will be used in expansion of plant capacity from 1.2 lakh units to three lakh units, with the second plant calling for an investment of Rs 5,000 crore.

Chaba declined to share the names of potential partners. 

The company is in talks with multiple entities including corporates, financial institutions to dilute the stake and the first step will be announced this year. 

“The opportunity is there to monetise the operation; how many companies get to do this? We can monetise, generate wealth, distribute wealth, localise everything here, bring the technology here and localise it,” said Chaba.

In a short span of five years, MG Motor India was able to set up a successful operation, despite monthly volumes of just 4,000 to 5,000 units, the company had made a mark for itself in the premium SUV market, despite intense competition. It also rode the wave of SUVs and electric vehicles (EVs) and broke into the top three EV makers in the country. 

Going ahead too, EVs will be at the core of expansion of MG Motor’s plans in the future. 

It will start assembly of batteries for its EVs in 2024 and it is also exploring the possibility of cell manufacturing in the country with an alliance partner. The company expects EV sales contribution to move up from 30-35 percent in 2023 to 60-65 percent by 2028.

With the equity infusion from the parent company stuck since 2020, MG Motor has been relying on the ECB loans or external commercial borrowings to meet its working capital requirement and fund its new product introduction plans to stay relevant in the Indian market.

Sources say the decision to divest stake by the parent was taken a few months back, emboldening the company to explore strategic options beyond just private equity raise to divesting stake.

The SUV specialist has already invested close to Rs 4,000 crore in India and was ready to infuse a similar amount, but the FDI proposal has been stuck with the Government of India since 2020, after several skirmishes at the India-China border.

MG Motor India’s decision to sell stake has been taken amid struggles to obtain FDI clearance from the Government of India for its future investment. This is precisely the same reason why Great Wall Motors, Changan and Foton, which despite spending years in India, decided to exit the market amid geo-political tension. Late last year, the income tax department had launched a search operation for alleged irregularities in the company’s accounts.

MG Motor entered India in September 2017 by acquiring General Motors India’s Halol plant. It has been manufacturing vehicles over the past four to five years but since the factory is over a decade-and-a-half old, there is a limitation to the extent to which the brand can produce. Hence, it has been actively exploring a second plant in India for over a couple of years now.