MG Motor plans to raise funds in big India push

At a time when Great Wall Motor, China’s top SUV maker, had to drop its $1 billion India plan, MG Motor, the Indian subsidiary of biggest Chinese car maker Shanghai Automotive, is working overtime to secure funds locally to kick off its next phase of expansion in the country.

MG Motor has already engaged with close to a dozen fund houses to raise $300-600 million locally, as its proposal to bring foreign direct investment is stuck with the Indian government. The deal is likely to close before the end of the financial year, said people in the know.

The next phase of expansion for the MG Hector manufacturer involves increasing manufacturing capacity and doubling the product portfolio to 10 models with a big focus on electric vehicles and deep localisation. This will call for an investment of close to Rs 5,000 crore. It has appointed a UK-based consulting firm to help raise funds.

The company has kept all options open, from greenfield expansion to acquisitions and partnering with another automotive company for contract manufacturing, MG Motor India managing director Rajeev Chaba told ET.

“I believe in partnership, we have a few OEMs (automakers), we have mutual respect for each other, the dialogue is always on, everybody wants to explore, it is not our personal philosophy, collaboration is a way towards growth in the automotive industry,” said Chaba.

The company has been holding advanced discussions with several global private equity investors and funds focused on ESG (environmental, social and governance) profiles. It is exploring setting up an EV subsidiary, like , to bring in new investors.

The valuation of Tata Motors’ electric business for TPG’s investment has been set as a benchmark for the fundraising for MG Motor’s Indian subsidiary, said an investor banker involved in the discussions. “Our discussion with investors shows that MG Motor has more experience and is about two generations ahead of the Indian market, which makes valuation quite closer to the Tata Motors-TPG deal,” he added.

The proposed fundraising would provide MG Motor India with medium-term capital to scale up operations. Also, the potential exit of private equity investors in the next few years could lead to local listing on the bourses, the people aware of the development said.

Chaba said demand for its products was very high and it was finding multiple ways, including addressing supply chain challenges, to cater to the rising demand. The company intends to use fresh proceeds on capacity expansion, on localising connected car and EV technologies and is working with the local ecosystem on upskilling.

To ensure continuity in the operation, MG Motor India raised money through external commercial borrowing and local loans and invested Rs 2,000 crore after the pandemic, to deliver higher volumes.

The company is set to double its capacity in its Halol plant to about 1,30,000 units this year and expand it further to 3,00,000 units in the next few years, which will call for a new facility. It wants almost a third of its total output to be EVs. All these would require fresh investments.

MG Motor India had borrowed more than Rs 742 crore and at the end of FY21, had net debt of Rs 255 crore, according to its filings with the Ministry of Corporate Affairs.

Amid the expansion drive, the company is also targeting plant utilisation of 60% to achieve breakeven. For this, it is also increasing the use of local components in its vehicles to 75% from 60%.

SAIC entered India through its British brand MG in 2019 with a committed investment of Rs 4,500 crore. The company has put in Rs 3,200 crore so far and has been waiting for approvals for more than 18 months to bring in more foreign investment. The delay has happened amid India’s increased scrutiny of investment coming from countries it shares a border with, after the skirmishes on the Sino-India border two years ago.

Great Wall has dropped its plan to acquire General Motors’ plant at Talegaon on the outskirts of Pune because of no visibility of FDI approval and GM deciding to look for alternatives.

MG Motor is struggling to ramp up volumes in India and sell beyond 4,000-5,000 vehicles a month because of supply chain challenges and restrictions of imports.

The company sold about 40,000 vehicles in FY-22, posting growth of 14%. While India accounted for only 1% of SAIC’s global volumes, this is one of the fastest growing large markets for the Chinese company. SAIC holds the Indian subsidiary through SAIC Motor HK Investment.

According to MG Motor’s annual filing with the Ministry of Corporate Affairs, shared by business information platform Tofler, the company posted revenue of Rs 4,529 crore in FY21, up 80% from the year before. After posting a net loss of Rs 715 crore for FY21, its cumulative loss since FY18 was around Rs 1,720 crore.

The company is set to double its capacity in its Halol plant to about 1,30,000 units this year and expand it further to 3,00,000 units in the next few years. Best wishes to the entire team. I look forward to seeing your future accomplishments.

Shishir Gupta, Founder and CEO, StartupLanes

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