March 10, 2025: Alternative fuels constituted 12 percent of the powertrain composition within the commercial vehicles sector including CNG, LNG, and electric, as reported by the ratings agency ICRA. In contrast to this, the fuel powertrain mix, conventional fuels, predominantly diesel, maintained an 88% share in the year-to-date fiscal year 2025.
ICRA’s advisory further indicated that there has been a notable increase in the adoption of electric vehicles (EVs) within the bus segment, which recorded a 5% penetration rate in the year-to-date fiscal year 2025.
The ratings agency provided insights into India’s commercial vehicles sector, stating that the revival of infrastructure and construction activities, along with an improving economic landscape, are expected to be the primary catalysts for growth in this segment during the fiscal year 2026. The sector experienced a 3% decline year-over-year in the first nine months of the fiscal year 2025, attributed to factors such as a high base effect, a sustained slowdown in e-commerce, and competition from electric three-wheelers (e3Ws).
Overall, ICRA anticipates that the wholesale volumes of the domestic commercial vehicle (CV) industry will experience a year-over-year growth of 3-5% in the fiscal year 2026, indicating a potential recovery. This follows a period of stagnant volume movement projected for the fiscal year 2025, which was impacted by a demand slowdown in the first half of the fiscal year due to general economic conditions.
In discussing the industry’s outlook, Kinjal Shah, Senior Vice President & Co-Group Head at ICRA, remarked: “The resumption of construction and infrastructure activities, consistent rural demand, and increased replacement sales driven by aging fleets and government mandates are likely to be the key factors facilitating volume growth towards the end of fiscal year 2025 and into fiscal year 2026. ICRA believes that the long-term growth drivers for the domestic CV industry will remain robust.”
The wholesale volumes for Medium and Heavy Commercial Vehicles (M&HCV) are projected to experience a growth of 0-3% year-on-year in FY2026, following a period of stagnant growth or slight decline in FY2025. The anticipated revival of construction and infrastructure projects is expected to contribute to this modest increase in volumes for FY2026. In the first nine months of FY2025, this segment faced approximately a 7% year-on-year contraction, with tipper volumes decreasing by around 11% year-on-year, while both the haulage and tractor-trailer sub-segments saw a decline of 5% year-on-year.
In contrast, the wholesale volumes for domestic Light Commercial Vehicles (LCV) are forecasted to achieve a modest growth of 3-5% year-on-year in FY2026, after experiencing either stagnant growth or a slight contraction in FY2025.
Notably, the scrappage of older government vehicles has been stimulating replacement demand within the bus segment from state road transport undertakings (SRTUs). This trend is anticipated to lead to an 8-10% year-on-year growth for the bus segment in FY2026, following an expected 11-14% year-on-year increase in FY2025, thereby exceeding the historical high volumes recorded in FY2013 during FY2025.
Shah further noted that ICRA anticipates the operating profit margin (OPM) for domestic commercial vehicle original equipment manufacturers (OEMs) to remain stable within the range of 11-12% for FY2025 and FY2026, compared to 10.7% in FY2024. This stability is expected to be supported by favorable raw material costs, price increases implemented by CV OEMs, and various cost rationalization measures.
A significant regulatory change on the horizon is the mandatory installation of air-conditioned cabins for trucks, effective from October 2025, which is likely to raise vehicle prices by approximately Rs. 20,000 to Rs. 30,000. Furthermore, capital expenditure and investments in the industry are projected to rise to around Rs. 58-60 billion in FY2025 and FY2026, up from approximately Rs. 34 billion in FY2024. These investments will primarily focus on product development, particularly in the realms of alternative powertrains, technological advancements, and maintenance-related initiatives.
ICRA expects the credit metrics of the industry to demonstrate a gradual improvement in FY2026, aided by steady profitability and contained debt levels. With this, ICRA estimates the Total Debt/ OPBITDA and interest coverage for the industry to gradually improve to 1.0 – 1.2 times and 8.0 – 8.5 times, respectively, in FY2026. Overall, the coverage metrics for FY2026 are projected to remain comfortable, and better than the FY2020-FY2023 period.
