India's MHCV market to stay strong with 6-8% CAGR till FY28: Report

The Indian MHCV market is set for robust growth until FY27-28, with a projected 6-8% CAGR. An ageing fleet requiring replacement, continued infrastructure spending, and pre-buying before BS7 norms are key drivers, says a Yes Securities report.

The Medium and Heavy Commercial Vehicle (MHCV) segment is expected to remain strong through FY27-28, according to a report by Yes Securities. The report estimates a 6-8 per cent compound annual growth in volumes until total industry volumes (TIV) stabilise around FY31-32. "MHCV cycle likely to stay strong over FY27/28; 6-8% vols CAGR likely before TIV stabilizes in FY31-32," the report noted.

Near-Term Growth Drivers

Growth in the near to mid-term is likely to be driven by multiple factors. These include delayed vehicle replacements due to GST 2.0-related price changes and an ageing fleet. Around 42 per cent of vehicles are currently 8.5-10 years old, accounting for nearly 2 million units that may need replacement.

The report also highlighted that demand will be supported by the release of funds stuck in infrastructure projects over the past few months, a low base in the first half, and lean inventory levels entering FY27.

Long-Term Demand Outlook and BS7 Norms

Beyond FY27, demand is expected to remain strong due to continued infrastructure spending, improved fleet utilisation, and pre-buying ahead of BS7 emission norms expected by 2028. Fleet utilisation has already improved to 70-75 per cent from earlier levels of 53-55 per cent. The upcoming BS7 norms could increase vehicle costs by 10-12 per cent.

Fuel Price Impact and Market Resilience

The report noted that diesel price hikes have had limited impact on commercial vehicle volumes over the past 15 years, as most freight contracts allow fuel cost pass-through. However, higher fuel prices may still affect sentiment and delay purchase decisions temporarily.

The sector is expected to remain resilient even if diesel prices rise to Rs 120-125 per litre. "While fuel prices do not directly affect margins, they can still influence fleet sentiment and lead to temporary delays in vehicle purchases...Given recent crude spike, the industry would generally be resilient to diesel prices up to Rs 120-125/liter," the report stated.

It added that improvements in fuel management technologies have enhanced efficiency and reduced dependence on load-based fuel consumption.

Segmental Profitability and LCV Outlook

Profitability remains highest in the Heavy Commercial Vehicle (HCV) segment, especially in tippers. Margins could improve by 1-1.5 per cent through cost optimisation, localisation, and lighter vehicle platforms. Meanwhile, Light Commercial Vehicles (LCVs) are expected to provide steady growth as they are less cyclical compared to heavier segments.

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