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Informist, Thursday, Jan. 23, 2025

MUMBAI – The Indian automotive sector's domestic sales volume growth may moderate to 5-8% in the financial year 2025-26 (Apr-Mar), following 9-11% growth in FY25, India Ratings and Research said at a virtual conference Thursday. While sales of commercial vehicles and passenger vehicles are both seen improving in FY26, the two-wheeler segment is expected to lead the growth on the back of reviving rural demand, the agency said. However, slower consumption in urban markets is anticipated to weigh on the sector's growth.

 

Passenger vehicle volumes may grow 2-5% on year in FY26, faster than the modest 1-3% growth being registered in the current financial year. "...as pent-up demand normalises, utility vehicles will continue to gain volume share in FY26," India Ratings said in a press release. A K-shaped recovery is visible in utility vehicles while the non-utility vehicle segment has been lagging, data shows. 

 

Two-wheeler volumes may grow 6-8% in FY26, lower than the 11-14% growth rate seen in FY25, the rating agency said. The motorcycle segment is expected to see demand shifting to 110-125 cc variants from 75-110cc owing to the premiumisation trend. The domestic sales volume of two-wheelers is expected to surpass pre-COVID-19 levels, but the growth is expected to be moderate hereafter, given the higher base.

 

The commercial vehicle segment, which is expected to have contracted 1-3% on year in FY25, may recover in FY26 and grow by a modest 1-4%, India Ratings said. The revival may be fuelled by a resumption in infrastructure activities which saw a lull in FY25 due to the general election in the June quarter and state elections in the December quarter.

 

The electrification drive in the Indian automotive industry will continue to gain momentum in FY26, India Ratings said, especially in the two-wheeler, three-wheeler, light commercial vehicle, and bus segments. In the passenger vehicle segment, electrification is likely to increase, although not materially, until cost feasibility and range anxiety issues are resolved.

 

Exports by the Indian automobile industry, which peaked in FY22, have been slowly recovering. Exports may grow in FY26, given that original equipment manufacturers are penetrating newer markets such as Latin America and West Asia. Conventional export geographies may also see a revival, India Ratings said. 

 

The agency has a neutral outlook on the automobile sector for FY26. The revenue growth of the Indian automotive industry is expected to be in the range of 5-8% in FY26, similar to the 5-7% rate in FY25. This revenue growth will be supported by volume growth, and the increasing proportion of premium vehicles. However, limited price hikes by companies and a reduced proportion of sales of higher-priced commercial vehicles and passenger vehicles will offset the positives, India Ratings said.

 

"EBITDA margins are also likely to remain range-bound in FY25-FY26, led by largely stable raw material prices and vehicle prices, though benefitting from operating leverage and an increased proportion of premium vehicles," India Ratings said.  End

 

Reported by Anand JC

Edited by Rajeev Pai

 

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