India's M&HCV industry growth to slow in FY27, says Kotak report

India's medium and heavy commercial vehicle (M&HCV) industry growth is expected to slow to low single digits in FY27 due to a high base, though easing diesel prices could support demand, says a Kotak Equities report.

India's medium and heavy commercial vehicle (M&HCV) industry is likely to witness a moderation in growth during FY27 after a strong performance in the previous fiscal, although easing fuel price uncertainty could provide support to fleet operators and vehicle demand, according to a report by Kotak Institutional Equities.

The brokerage expects domestic M&HCV industry growth to slow to low single digits in FY27, primarily due to a high base effect and normalization of demand that had been pulled forward earlier. "We expect the domestic M&HCV industry growth to moderate to low-single digits in FY2027E after a strong FY2026," the report said.

Easing Fuel Prices May Support Demand

Kotak believes a potential US-Iran agreement could help reduce crude oil and diesel price volatility, thereby improving visibility for fleet operators. "With a likely US-Iran deal, crude/diesel prices may continue its downtrend... and may bring greater certainty to fleet purchase decisions and provide a floor to demand," the report noted.

The brokerage said that diesel expenses account for 30-50 per cent of the total cost of ownership for fleet operators, making fuel prices a critical factor in vehicle purchasing decisions.

Supportive Demand Drivers vs. Growth Caps

While underlying demand drivers remain supportive, the pace of growth is expected to remain capped. According to the report, "tailwinds such as sustained government capex on infrastructure, replacement demand from an aging fleet and healthy utilization levels should keep underlying demand supportive."

At the same time, "price increases, owing to higher input costs, a high base and monsoon uncertainty are likely to cap the pace of growth in FY2027E." Kotak estimates that M&HCV volumes will grow around 3 per cent year-on-year in FY27.

Impact of Rising Operating Costs

The report also highlighted the impact of rising operating costs on fleet profitability. Following a recent diesel price increase of Rs 7.5 per litre and higher tyre prices, "the total fleet costs have risen by 7-8 per cent."

Freight Rate Hikes Needed

To maintain profitability, fleet operators would require a further increase in freight rates. "In order to maintain their profitability, fleet operators would need to increase freight rates by 5-6 per cent," the report said, adding that freight rates have already risen about 2 per cent since March 2026 and may need another 3-4 per cent increase to fully offset cost inflation. (ANI)

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