How The Commercial Vehicle Cycle Is Shaping Tata Motors' CV Listing

The medium- and heavy-commercial-vehicle (MHCV) cycle is turning after a prolonged slowdown. The GST cut from 28% to 18% has lowered ownership costs and improved fleet profitability. This is expected to translate into higher demand, with Ambit Capital estimating that MHCV industry volumes will grow at a 4.2% CAGR over FY25–FY28.

The demand environment is becoming more supportive. Higher government capital expenditure, infrastructure spending, and the revival of mining and construction activity should aid incremental volumes, particularly in heavy and off-road trucks. Improving freight economics, coupled with GST-led savings, is likely to drive a replacement-led recovery over the next few years. Rising consumption and the expansion of e-commerce add support to freight demand.

A structural shift toward higher-tonnage vehicles continues, following the 2018 axle-load norm revisions. Fleet operators are moving to larger trucks to improve operating leverage. Higher-tonnage vehicles carry a higher average selling price. Ashok Leyland has reflected this trend, delivering 50% returns year to date.

Against this backdrop, the question is whether Tata Motors Commercial Vehicle (TMCV) offers an opportunity to participate in the next phase of the MHCV cycle.

After the demerger from Tata Motors Passenger Vehicles, TMCV operates as a pure-play CV company. It holds over 35% volume market share and 42% revenue share in the Indian CV market. The MHCV segment remains central to the business, with 46% market share in H1 FY26. Within this, TMCV holds over 60% market share in heavy goods vehicles.

TMCV has lost market share to Mahindra and Mahindra (M&M) in the light commercial vehicle segment. TMCV’s market share fell to 27% in H1 FY26 from 40% in FY22, while Mahindra’s share rose to 46% from 36%.

To address the decline, management is working on product issues, strengthening the service network, especially in rural areas, and building a financing ecosystem for LCVs. TMCV offers multiple fuel options, including diesel, CNG, electric and petrol, compared with peers such as Ashok Leyland and M&M.

In FY25, Intermediate and Heavy Commercial Vehicles (IHCVs) accounted for 43% of revenue, making it the largest segment. Intermediate, Light and Medium Commercial Vehicles (ILMV) contributed 11%, CV passenger vehicles 10%, and small commercial vehicles and pick-ups 9%. The Daewoo business contributed 7%, while spares accounted for 10%.

Management expects single-digit to higher single-digit growth across segments in H2 FY26, with Q3 starting on a stable footing. The company aims to sustain truck market-share gains from the second half, supported by the rollout of Model Year 26 products across the heavy commercial vehicle and ILMCV segments.

In small commercial vehicles, retail volumes have stabilised at about 15,000 units per month for two consecutive months, supporting a gradual market-share recovery. TMCV is also increasing its presence in the CV passenger vehicle segment, including buses and vans.

TMCV secured three large tenders in Q2, with deliveries underway. These orders are expected to support market-share gains through FY26 and increase participation in the CV cycle.

The acquisition of IVECO expands TMCV’s global presence. The combined entity reports consolidated revenue of over Rs 2 lakh crore and volumes of about 545,000 units. This places the group among the largest truck manufacturers globally by sales volume.

The deal expands the addressable market and adds geographic diversification, with IVECO’s presence in Europe and South America. IVECO provides access to technologies used in regulated markets, including EURO VI emissions systems, alternative propulsion, and EV technologies such as NMC battery packs and battery management systems.

Management targets free cash flow of up to 0.5% of consolidated revenue from FY28. The turnaround at Jaguar Land Rover under Tata Motors provides a reference point for integration and value creation.

Revenue rose 0.9% year on year to Rs 35,400 crore in H1 FY26, supported by a 2.8% rise in volumes. EBITDA margins expanded by 100 basis points to 12.2%, compared with 11.6% at Ashok Leyland. Profit before tax, before exceptional loss, rose 21.9% to Rs 3,326 crore. As of Sept. 30, TMCV reported net debt of Rs 586 crore.

At Rs 385 per share, TMCV trades at about 15 times FY26E EV/EBITDA, compared with about 14.2 times for Ashok Leyland. Risks include the operationalisation of the Dedicated Freight Corridor, which could shift bulk cargo to rail and affect MHCV replacement demand over time.

Integration risks related to IVECO remain. The MHCV market remains cyclical, and discounting to gain market share could affect margins. TMCV remains exposed to the MHCV cycle following the demerger.