India's Commercial Vehicle Industry to See Modest 3-5% Growth in FY2026, Says ICRA

The domestic commercial vehicle industry in India is projected to grow by 3-5% in the 2025-26 financial year, following stagnant volumes in FY2025, according to ratings agency ICRA. The recovery comes after demand was dampened during the first half of the current fiscal year due to the General Elections.

"Resumption of construction and infrastructure activities, steady rural demand along with higher replacement sales stemming from ageing fleets and Government mandates are the likely driving factors," said Kinjal Shah, Senior Vice President & Co-Group Head at ICRA. The agency maintains that long-term growth drivers remain intact, supported by the government's continued focus on infrastructure development, increased mining activities, and improvements in road connectivity.

Medium and heavy commercial vehicles (M&HCV) are expected to see 0-3% growth in FY2026, rebounding from flat or marginally negative performance in FY2025. The segment has already experienced a 7% contraction in the first nine months of FY2025, with tipper volumes falling by 11% and haulage and tractor-trailer sub-segments each declining by 5%.

Light commercial vehicles (LCV) are forecast to achieve a modest 3-5% expansion in FY2026, recovering from stagnant growth in the current fiscal year. The LCV segment declined 3% year-on-year in the first nine months of FY2025, affected by high base effect, slowdown in e-commerce, and competition from electric three-wheelers.

The bus segment shows more promising prospects, with an expected 8-10% growth in FY2026, following an 11-14% expansion in FY2025. This growth is primarily driven by the replacement of older government vehicles by state road transport undertakings, which will push volumes beyond the historic high set in FY2013.

Conventional fuels, primarily diesel, continue to dominate the commercial vehicle industry with 88% market share in the current fiscal year, while alternative fuels including CNG, LNG, and electric vehicles account for the remainder. Electric vehicles have gained the most traction in the bus segment, reaching 5% penetration.

ICRA expects the operating profit margins of commercial vehicle manufacturers to remain stable at 11-12% in both FY2025 and FY2026, compared to 10.7% in FY2024. This stability is attributed to favorable raw material costs, price increases implemented by manufacturers, and ongoing cost rationalization efforts.

The industry faces regulatory changes, with mandatory air-conditioned cabins for trucks coming into effect from October 2025, likely increasing vehicle prices by Rs. 20,000-30,000. Capital expenditure is projected to increase to Rs. 58-60 billion in FY2025 and FY2026, up from Rs. 34 billion in FY2024, primarily for product development in alternative powertrains, technology upgrades, and maintenance.

Credit metrics are expected to improve gradually in FY2026, with Total Debt/OPBITDA and interest coverage projected to reach 1.0-1.2 times and 8.0-8.5 times, respectively. These metrics are anticipated to remain stronger than those seen during the FY2020-FY2023 period.

The commercial vehicle industry in India has historically been a barometer for economic activity, with demand closely linked to infrastructure development, industrial output, and consumption patterns. The sector was significantly impacted during the pandemic but has since been on a recovery path, albeit with periods of volatility influenced by regulatory changes, economic conditions, and seasonal factors.