India's Passenger Vehicle Sector to Reach New Heights in FY26, Driven by Utility Cars

Synopsis

India's passenger vehicle (PV) industry is on track to achieve record volumes exceeding 5 million units this fiscal year, despite a growth rate slowdown to 2-4%. Utility vehicles (UVs) are expected to lead this growth, fueled by new launches and favorable rural conditions.

Key Takeaways

India's PV industry set to surpass 5 million units.
Utility vehicles to drive growth with 10% increase.
Rural recovery anticipated to boost entry-level car demand.
CNG vehicles gaining market share due to low running costs.
OEMs to maintain strong capex despite geopolitical tensions.

New Delhi, April 25 (NationPress) The passenger vehicle (PV) sector in India is poised to achieve a new pinnacle this fiscal year, with total domestic and export volumes expected to surpass 5 million units, even as the annual growth rate is projected to decelerate to 2-4 percent, according to a report released on Friday.

A report by Crisil Ratings highlighted that this will represent the fourth consecutive year of record-breaking sales, although the growth momentum has notably slowed from the remarkable 25 percent increase observed in fiscal 2023 following the pandemic.

The report indicates that utility vehicles (UVs) will spearhead volume growth this fiscal, supported by recent launches, declining interest rates, increased adoption of compressed natural gas (CNG), and favorable conditions in rural markets.

“While PV growth is expected to moderate to 2-4 percent this fiscal, UVs are set to thrive with a growth rate of 10 percent, bolstered by new model introductions. With UVs accounting for 68-70 percent of total volumes and a substantial portion of upcoming models, the trend toward premiumization is becoming structural,” remarked Anuj Sethi, Senior Director at Crisil Ratings.

Improved rural conditions, anticipated from a likely above-average monsoon and lowered interest rates, should enhance demand for entry-level vehicles.

Strong cash flows and healthy cash reserves will empower original equipment manufacturers (OEMs) to manage their substantial capital expenditures (capex) efficiently while maintaining robust balance sheets and stable credit profiles.

Last fiscal, the domestic market constituted 85 percent of the total volume, with exports making up the remainder.

The fuel mix is also evolving quickly. CNG-powered passenger vehicles are gaining traction, with their market share expected to reach 15 percent this fiscal due to lower operating costs and a rapidly expanding network of over 7,000 refueling stations.

“OEMs may explore alternative markets such as Mexico, Gulf nations, South Africa, and East Asia; however, ongoing geopolitical tensions could impact the momentum of exports,” the report noted.

The PV capex is anticipated to remain high at Rs 30,000 crore this fiscal, as OEMs boost capacity, accelerate investments in EVs, and promote localization and digital advancements. Nevertheless, this elevated capex is sustainable, underpinned by strong internal accruals and cash reserves, with a capex-to-Ebitda ratio steady at 0.5x,” stated Poonam Upadhyay, Director at Crisil Ratings.

The introduction of global premium EV models, including those from Tesla, will heighten competition in the premium segment—which currently represents less than 10 percent of the overall volume—and is likely to reset consumer expectations across all categories, compelling Indian OEMs to fast-track technological advancements. However, existing high tariffs will restrict imports.