ICRA has adjusted its forecast for the commercial vehicle (CV) industry’s domestic wholesale volumes, anticipating a slight Y-o-Y growth of 0-3% for FY25 instead of the previously expected decline of 4-7%. This revision comes after better-than-expected volume growth in the first four months of FY25 and an anticipated demand increase in the second half of the fiscal year. FY25 is set to be the second consecutive year of modest growth, following a 1% and 3% Y-o-Y growth in wholesale and retail sales, respectively, in FY24.Kinjal Shah, Senior Vice President & Co-Group Head – Corporate Ratings, ICRA, explained the factors influencing the CV market dynamics. “A range of factors such as the slowdown in infrastructure activities during the General Elections, as well as extreme heatwaves across the country, had some bearing on demand in Q1 FY25. However, volumes in this period exceeded ICRA’s expectations. Looking ahead, ICRA expects a recovery in volumes in H2 FY25 aided by a back-ended Government capex, some pick-up in private capex across manufacturing sectors, and an improvement in rural demand, following visibility around the Kharif crop output and farm cash flows. The replacement demand would also remain healthy (primarily due to the ageing fleet) and is expected to support the industry volumes in the medium term.”Shah also pointed out the enduring positive factors for the CV industry. “The long-term growth drivers for the domestic CV industry remain intact, like the sustained push in infrastructure development (evidenced by retaining the higher infrastructure capital outlay in the July 2024 budgetary allocation), a steady increase in mining activities, and the improvement in roads/highway connectivity.”
M&HCV to observe a nominal growth in FY25
Among the CV industry’s various sub-segments, medium and heavy commercial vehicles (M&HCV) (trucks) volumes in FY2025 are expected to show a nominal growth of 0-3% Y-o-Y . This projection takes into account the high base effect and the impact of General Elections on infrastructure activities in the initial months of the fiscal year. The segment had ended FY2024 with relatively flat volumes. Within this sub-segment, tippers experienced a 4% Y-o-Y contraction in Q1 FY25, while the haulage sub-segment showed a modest 3% Y-o-Y growth for the same period. Tractor-trailers registered a modest 7% Y-o-Y volume growth in Q1 FY25.
LCV to observe negligible growth
For domestic light commercial vehicles (LCV) (trucks), the expected Y-o-Y growth in wholesale volumes ranges from (-1)% to 2% in FY2025. This tepid growth is attributed to factors like a high base effect, sustained slowdown in e-commerce, and competition from electric three-wheelers (e3Ws). In FY24, this segment saw a mild 3% Y-o-Y decline due to these factors, coupled with a deficit in rainfall impacting the rural economy. The increased total cost of ownership for LCVs has also resulted in a rising preference for pre-owned vehicles among small fleet operators, potentially affecting future demand.
Bus segment to observe good growth
The bus segment is expected to see a Y-o-Y growth of 8-11% in FY25 driven by the replacement demand from the scrappage of older government vehicles by state road transport undertakings (SRTUs). The sub-segment gained considerable traction in FY24 and exceeded pre-Covid levels.
Regarding the powertrain mix, conventional fuels, primarily diesel, continue to dominate the domestic CV industry with over 90% penetration. In FY2024, alternative fuels (CNG, LNG, and electric) accounted for about 9% of sales. The highest penetration of electric vehicles (EVs) has been seen in the bus segment at 7%, followed by LCV goods at 1%, partly due to e-buses being covered under FAME-II subsidies.
OPM of OEMs
ICRA projects the operating profit margin (OPM) of domestic CV original equipment manufacturers (OEMs) to be in the range of 9.5%-10.5% in FY2025. This is due to muted volumes and higher competitive pricing pressures, although factors like cost improvements, favorable raw material costs, and better product discipline will provide some support. The OPM for FY24 had improved by almost 300 basis points to 10.7%, supported by operating leverage benefits and a better product mix. Increases in capex and investments are expected for the industry, projected at approximately INR 56-58 billion in FY25, compared to around INR 34 billion in FY24. These investments will focus mainly on product development, especially in alternate powertrains, technology upgrades, and maintenance activities.
Shah added insight regarding credit metrics for the industry. “ICRA foresees the credit metrics of the industry to remain stable in FY25 even as margins may contract marginally and capex outlay is anticipated to increase. The continued strong operating performance is expected to support the coverage metrics of the industry, with Total Debt / OPBITDA projected at 1.2-1.4 times as on March 31, 2025, against 1.5 times as on March 31, 2024, and interest coverage at 6.8-7.2x in FY25, against 7.2 times in FY24.”
Shah’s insights and predictions reflect a detailed analysis of the domestic CV market, highlighting both challenges and potential growth areas in the upcoming fiscal year.
