India's CV industry wholesale volumes to grow at 3-5% in FY26: Icra

After a period of stagnation in FY25, the Indian commercial vehicle (CV) industry is gearing up for a modest recovery, with ICRA forecasting a 3-5 per cent year-on-year growth in wholesale volumes for FY26. This projected recovery comes on the heels of a flat volume movement in FY25, which was largely attributed to a demand slowdown during the first half of the financial year due to the general elections.

 

According to ICRA, the anticipated growth will be fuelled by a confluence of factors, including the resumption of construction and infrastructure activities, consistent rural demand, and a surge in replacement sales driven by ageing fleets and government mandates.

   

According to Kinjal Shah, senior vice president and co-group head at ICRA, "The push in infrastructure development, higher allocation in the recent Budget, steady mining activities, and improved highway connectivity will support volumes going forward. Additionally, replacement demand for medium and heavy commercial vehicles (M&HCVs), with an average fleet age of around 10 years, is expected to further aid industry expansion."

 

Breaking down the segments, the M&HCV truck category is expected to witness a marginal Y-o-Y volume growth of 0-3 per cent in FY26 after a flattish or slightly negative trend in FY25. The segment recorded a 7 per cent Y-o-Y contraction in the first nine months of FY25, with tippers, haulage trucks, and tractor-trailers experiencing declines of 11 per cent and 5 per cent, respectively.

 

Meanwhile, light commercial vehicles (LCVs) are projected to grow by 3-5 per cent in FY26 after facing a marginal contraction in FY25, impacted by a high base effect, a slowdown in e-commerce, and increased competition from electric three-wheelers.

 

The bus segment, however, remains a bright spot, with an 8-10 per cent Y-o-Y growth anticipated in FY26 following an 11-14 per cent increase in FY25. The ongoing scrapping of older government vehicles has been a key driver for replacement demand from state road transport undertakings (SRTUs), with volumes expected to surpass historic highs recorded in FY13.

 

While diesel continues to dominate the CV industry with an 88 per cent market share in YTD FY25, alternative fuels such as compressed natural gas (CNG), liquefied natural gas (LNG), and electric vehicles (EVs) are gradually gaining traction. Notably, the bus segment has seen higher EV adoption, with a penetration of 5 per cent during the same period.

 

Industry challenges include regulatory changes, such as the mandatory installation of air-conditioned cabins for trucks from October 2025, which is expected to increase vehicle prices by Rs 20,000-30,000. However, ICRA remains optimistic about the industry's financial health, projecting operating profit margins (OPM) for original equipment manufacturers (OEMs) to remain range-bound at 11-12 per cent in FY25 and FY26, supported by stable raw material costs, price adjustments, and other cost efficiencies.

 

Capital expenditure in the CV industry is also expected to rise significantly to Rs 58-60 billion in FY25 and FY26, up from Rs 34 billion in FY24. Investments will be directed towards product development, alternate powertrain technologies, and overall technological advancements.

 

ICRA expects the credit metrics of the industry to gradually improve, with total debt/OPBITDA and interest coverage ratios estimated to strengthen to 1.0-1.2 times and 8.0-8.5 times, respectively, in FY26. The overall financial position is expected to remain stable and healthier than during the FY20-FY23 period.