India’s commercial vehicle sector is expected to see a moderate growth of 3-5% in the fiscal year 2025-26, following a period of stagnation in FY2025, as per ICRA. The recovery follows a slowdown in the first half of the current fiscal year, impacted by the General Elections.
Kinjal Shah, Senior Vice President & Co-Group Head at ICRA, noted that growth will be driven by the resumption of construction and infrastructure projects, stable rural demand, and higher replacement sales due to aging vehicle fleets and government mandates. ICRA also emphasized that long-term growth drivers, including ongoing government infrastructure development, mining activities, and road connectivity improvements, remain in place.
The medium and heavy commercial vehicle (M&HCV) sector is expected to grow by 0-3% in FY2026, recovering from flat or slightly negative growth in FY2025. The segment had already experienced a 7% contraction in the first nine months of FY2025, with a drop in volumes across tipper, haulage, and tractor-trailer categories.
The light commercial vehicle (LCV) segment is projected to expand by 3-5% in FY2026, bouncing back from a period of stagnation. The LCV market declined by 3% in the first nine months of FY2025 due to a high base effect, slower growth in e-commerce, and competition from electric three-wheelers.
The bus segment is expected to show more promising growth, with a forecasted 8-10% increase in FY2026, following an 11-14% rise in FY2025. The growth is driven by the replacement of older government buses by state-run transport agencies, pushing volumes past previous high points seen in FY2013.
Diesel continues to dominate the commercial vehicle market, holding an 88% share in the current fiscal year. However, alternative fuels, such as CNG, LNG, and electric vehicles, make up the remainder, with electric vehicles gaining traction in the bus segment, now accounting for 5% of the market.
ICRA anticipates operating profit margins for commercial vehicle manufacturers to remain steady at 11-12% in FY2025 and FY2026, compared to 10.7% in FY2024. This stability is attributed to favorable raw material prices, price hikes by manufacturers, and ongoing cost-cutting measures.
The industry is also facing regulatory changes, with a requirement for air-conditioned truck cabins set to take effect in October 2025, expected to increase vehicle prices by Rs. 20,000-30,000. Capital expenditure for the sector is projected to rise to Rs. 58-60 billion in FY2025 and FY2026, up from Rs. 34 billion in FY2024, largely to fund product development, alternative powertrain technologies, and technology upgrades. Credit metrics are predicted to improve gradually in FY2026, with Total Debt/OPBITDA and interest coverage expected to reach 1.0-1.2 times and 8.0-8.5 times, respectively, outpacing the metrics seen from FY2020 to FY2023.
Historically, the commercial vehicle industry in India has been a key indicator of economic activity, with demand closely tied to infrastructure development, industrial production, and consumer spending. Despite challenges during the pandemic, the sector has been on a recovery path, although it remains subject to fluctuations due to regulatory changes, economic factors, and seasonal trends.
