India's commercial vehicle space has quietly turned into one of the market's strongest performers. The shares of Tata Motors Commercial Vehicles, since its listing on Nov. 12 has rallied 56%, while Ashok Leyland has surged 48% during the same period.
The outperformance is striking, especially when seen against the broader indices. Over the same period, the Nifty Auto index has gained just 3.5%, while the Nifty 50 is down 1.5%. The question now is whether this sharp move is pricing in most positives — or whether the cycle is only getting started.
What Drove The Sharp Outperformance?
A key trigger was the GST rate cuts, which initially led to buyers deferring purchases in anticipation of lower prices. Once clarity emerged, pent-up demand returned to the market, aiding dispatches.
The December quarter numbers reinforced the recovery narrative. In the third quarter of this fiscal, Ashok Leyland reported a 24% rise in sales volumes at 57,625 units compared with 46,404 units a year earlier. Tata Motors CV posted 20% growth at 1,15,577 units versus 95,770 units last year.
Market share dynamics in the medium and heavy commercial vehicle (MHCV) segment also remain strong. Tata Motors holds 47% share of MHCV wholesales, while Ashok Leyland commands 32%, underlining the duopoly nature of the industry.
The combination of demand revival, market share stability and improving operating leverage has fuelled investor enthusiasm.
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Why The Rally May Still Have Legs
Despite the sharp run-up, several structural factors suggest the CV cycle may not be fully played out.
One of the biggest supports is the ageing fleet. The average age of trucks on Indian roads stands at around 10 years, significantly higher than the normal replacement cycle of roughly seven years. Fleet operators will eventually need to replace older vehicles to improve efficiency and comply with emission norms.
Management commentary from Ashok Leyland's recent concall indicated that bringing fleet age back to eight years would itself take a few years, suggesting a prolonged replacement cycle rather than a one-off spike.
Structural demand drivers are also evolving. The rise of quick commerce and e-commerce is accelerating the need for last-mile delivery vehicles, particularly in the light commercial vehicle (LCV) category. Exports, which currently form around 7% of total LCV sales, provide another lever for growth.
Additionally, the buses segment could emerge as a meaningful trigger, supported by state transport undertakings and private mobility operators upgrading fleets.
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Brokerage firm Nomura believes the industry is still in the early stages of a CV upcycle. Notably, volumes have yet to cross the fiscal 2019 peak, suggesting there is room for further expansion if economic growth sustains momentum.
The brokerage expects industry growth in the next financial year to be meaningfully stronger should macro conditions improve. It projects an 18% EPS CAGR for Ashok Leyland over fiscal 2026–2028.
For Tata Motors CV, Nomura's EPS estimates are 12% and 11% ahead of consensus for financial year 2027 and financial year 2028 respectively, indicating scope for positive earnings surprises if execution remains steady.
Analysts also point to supportive cost dynamics. Benign commodity prices, lower dealer discounts and operating leverage could drive margin expansion in the coming quarters.
Street sentiment remains constructive. Around 61% of analysts tracking Ashok Leyland have buy recommendations, while Tata Motors CV enjoys an even stronger 87% buy rating.
Valuations, despite the rally, are not stretched. Both stocks trade at roughly 11–13 times EV/EBITDA, broadly in line with historical averages for the sector.
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