Commercial Vehicle Industry in India to Grow by 3-5% in FY2026, Says ICRA

Modest Growth Expected After a Flat FY2025

India's CV market is likely to grow at 3-5% in FY2025-26, ICRA, a leading ratings agency, says. This comes after zero growth in FY2025, which was affected by slowdowns due to the General Elections. Growth drivers would be infrastructure growth, strong rural demand, and replacement demand for old vehicles.

Kinjal Shah, Senior Vice President & Co-Group Head, ICRA, said that the recovery of construction activity and sustained rural demand would lend support to the revival. Further, the initiatives of the Government of India in building infrastructure, expanding mining activities, and building road networks will also support the improvement in the performance of the sector.

Medium and Heavy Commercial Vehicles

The medium and heavy commercial vehicle (M&HCV) segment is expected to expand 0-3% in FY2026. This is a welcome relief after a tough FY2025, when the segment contracted by 7% in the first nine months. Tipper volumes fell by 11%, while haulage and tractor-trailer sub-segments fell by 5% each.

The weak performance in FY2025 was mainly due to sluggish demand during the election period. However, with the infrastructure projects gathering momentum, the M&HCV segment is likely to improve gradually in the next fiscal year.

Light Commercial Vehicles

The light commercial vehicle (LCV) segment also will grow by 3-5% in FY2026, recovering from flat FY2025. LCV sales declined 3% in the first three quarters of FY2025 compared with the previous year. The cause was due to a high base effect, deceleration in e-commerce delivery growth, and growing competition from electric three-wheelers.

Despite these issues, the LCV segment will recover over time as rural demand picks up and more businesses expand their delivery networks. Replacement demand for old vehicles will also fuel this growth.

Bus Segment

The bus segment is more vibrant, and an 8-10% growth is expected in FY2026. This comes after a strong increase of 11-14% in FY2025. State road transport initiatives are replacing older buses, and that is boosting demand.

Incidentally, even the bus sector is leading the charge in adopting electric vehicles (EVs). Electric buses have captured a 5% market share in this segment, reflecting that the shift towards greener energy is gaining momentum.

Conventional Fuels Still Dominate

Diesel remains the most widespread fuel for commercial vehicles, with an 88% market share in FY2025. But other fuels like CNG, LNG, and electric vehicles are slowly making inroads.

The growing need for cleaner fuel is also partially due to higher fuel prices and tighter emission standards. Although EVs are now a small segment of the market, their share is expected to increase in the future, especially in the bus market.

Financial Outlook: Stability in Profit Margins

ICRA predicts that commercial vehicle makers' operating profit margins will stay stable at 11-12% in FY2025 and FY2026. This is on the back of favorable raw material prices, price hikes by manufacturers, and cost-cutting measures. In FY2024, the profit margins were 10.7%, showing an improving trend.

Also, capital spending will go up to Rs. 58-60 billion in FY2025 and FY2026 from Rs. 34 billion in FY2024. Most of this spending will go towards developing alternative power source vehicles, enhancing technology, and maintaining existing operations.

Challenges Ahead: Rising Costs and Regulations

The commercial vehicle industry is also going to face some challenges. New norms requiring air-conditioned cabs for trucks are going to become effective from October 2025. This will increase the cost of vehicles by Rs. 20,000-30,000. Though this will make drivers more comfortable, it might also strain manufacturers' margins.

Besides, stricter emission norms and higher raw material costs may challenge the industry. However, the infrastructure demand spurt and the recovery in demand at a consistent rate should offset the forces mentioned above.

Improving Credit Metrics

ICRA predicts that the credit metrics of commercial vehicle manufacturers will improve slightly in FY2026. Key ratios like Total Debt/OPBITDA and interest coverage are expected to be better than those during the FY2020-FY2023 period. This improvement will likely make it easier for manufacturers to invest in new technologies and expand their operations.

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