ICRA projects that operating profit margins (OPM) for domestic CV OEMs will shrink slightly to 8.5%-9.5% in FY2025 because of lower volumes and competitive pricing pressures. In FY2024, OPM is estimated to have improved by 250-300 basis points, buoyed by five-year-high industry volumes.
Lower discounting by OEMs and stable commodity prices also contributed to margin expansion in FY2024. Looking ahead, capex and industry investments are expected to rise to INR 59 billion in FY2025 from INR 37 billion in FY2024, primarily for product development, technology upgrades, and maintenance.
Kinjal Shah, Senior Vice President & Co-Group Head, ICRA Ratings, said, "FY2022 and FY2023 had witnessed very sharp growth in volume and tonnage terms, enlarging the base."
She added, "The domestic CV volume growth momentum slowed down in FY2024 and is expected to dip in FY2025 amid the transient moderation in economic activity in some sectors in the backdrop of the General Elections."
Shah also noted, "The replacement demand would nevertheless remain healthy (primarily due to the ageing fleet) and is expected to support CV volumes in the near to medium term."
"The long-term growth drivers for the domestic CV industry remain intact, such as sustained pushes in infrastructure development, evidenced by an increase in the interim budgetary allocation, a steady rise in mining activities, and improvements in road and highway connectivity," she remarked.
The medium and heavy commercial vehicles (M&HCV) segment is expected to contract by 4-7% in FY2025 due to the high base effect and the General Elections' impact on infrastructure in the first few months. In FY2024, this segment saw a 4% year-on-year growth, facilitated by a better macroeconomic environment and increased freight availability earlier in the fiscal year, balancing out the subdued demand toward the end.
Within this segment, the haulage sub-segment experienced a 6% year-on-year volume contraction in FY2024. Tipper volume growth stayed flat on a year-on-year basis. Meanwhile, tractor-trailers recorded a robust 19% year-on-year growth in FY2024.
The domestic light commercial vehicles (LCV) segment is expected to decline by 5-8% in wholesale volumes for FY2025. This is attributed to a high base effect, a sustained slowdown in e-commerce, and competition from electric three-wheelers. The LCV segment saw a modest decline of 3% year-on-year in FY2024, influenced by these factors along with a deficit in rainfall impacting the rural economy.
The scrapping of older government vehicles is likely to drive replacement demand in the bus segment from state road transport undertakings (SRTUs) in FY2025, supporting growth of 2-5% overall. In FY2024, this segment gained significant traction and surpassed pre-Covid levels.
Regarding alternate fuel penetration in the domestic CV industry, Kinjal Shah added, "In terms of powertrain mix, conventional fuels (primarily diesel) continued to dominate the domestic CV industry with over 90% penetration, while alternate fuels (CNG, LNG, and electric) contributed around 9% in FY2024."
She continued, "Relatively higher penetration of EVs was seen in buses, followed by LCV goods, with a penetration of 7% and 1%, respectively, in FY2024."
This indicates a shift but also emphasizes the continued dominance of traditional fuel sources in the industry. Despite these challenges, the infrastructural push and replacement demand provide optimism for the sector's long-term growth.
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