Domestic CV industry volumes to remain muted in Q4 FY2024; sharp industry upcycle likely to plateau in FY2025: ICRA

The domestic commercial vehicle (CV) industry is anticipated to witness subdued growth in Q4 FY2024, with volumes expected to remain muted due to the base effect and a slowdown in infrastructural activities ahead of the General Elections, according to a report by ICRA. Despite an estimated 2-5% year-on-year growth in volumes for FY2024, the industry's sharp upcycle is predicted to plateau in FY2025, with a projected decline of 4-7%.

Kinjal Shah, Vice President & Co-Group Head, ICRA Ratings, remarked, "Long-term demand for CVs is expected to remain robust, supported by continued infrastructure investments and private participation in various sectors. However, near-term volumes may plateau due to the high base effect and transient moderation in economic activity associated with the General Elections."

The medium and heavy commercial vehicles (M&HCV) segment is forecasted to experience a slowdown in volume growth to 3-6% in FY2024, followed by a decline of 4-7% in FY2025. Similarly, the light commercial vehicles (LCV) segment, which witnessed significant expansion in previous years, is expected to contract by 1-4% in FY2024 and by 5-8% in FY2025 due to a high base effect and other sectoral challenges.

Conversely, the buses segment is anticipated to register healthy growth in FY2024, driven by mandatory scrappage policies for older government vehicles. However, growth is projected to moderate to 2-5% in FY2025 due to base effect considerations.

ICRA foresees an improvement in operating profit margins (OPM) for its sample set companies in FY2024, driven by operating leverage benefits and favourable commodity prices. However, a marginal contraction is expected in FY2025 to 8.5-9.5% due to lower volumes. Despite this, the report suggests that larger CV OEMs are unlikely to engage in significant debt-funded capacity expansions, instead focusing on product development initiatives such as electric and hydrogen fuel-powered drivetrains.