24 - 08 - 2026

Tyre makers’ margins to see transitory dip to 12% on bumpy costs

India’s tyre makers are likely to see operating margins moderate this fiscal from about 14.2 per cent recorded in the last fiscal, impacted by raw material inflation that outpaced staggered price hikes.  

The inflation in raw material prices was stoked by the West Asia conflict and tight natural rubber supplies, according to a report by Crisil Ratings.

The squeeze would be transitory as sustained replacement. This is because demand from original equipment manufacturers (OEM) and rationalisation of Goods and Services Tax (GST) are giving manufacturers room to pass on costs gradually, while the full benefit of price increases and stabilising input costs should help margins largely recover back next fiscal.

“A sharp 35-40 per cent rise in key inputs is likely to compress tyre makers’ operating margins by 200-250 basis points this fiscal, but this is a cost-pass-through lag rather than a structural profitability reset. Demand resilience and GST rationalisation are allowing staggered price hikes, and as these flow through — assuming input costs stabilise — margins should recover to 13-13.5 per cent in next fiscal,” Anuj Sethi, Senior Director, Crisil Ratings, said.

The calibrated pricing approach by creating headroom to absorb part of the cost increase without sharply raising consumer prices should help preserve demand momentum. This combined with near-peak utilisation is setting off the sector’s next capex cycle, but strong balance sheets should keep credit profiles stable.

These were based on Crisil’s analysis of top six tyre makers, accounting for 85 per cent of the sector’s ₹1.36-lakh crore revenue last fiscal. Aftermarket demand accounts for around half of total volumes, while OEMs and exports contribute about a quarter each.

Rubber prices rise

The cost pressure is broad-based. Natural rubber, which accounts for nearly half of the industry’s raw material costs, rose to ₹275 per kg in June 2026 from ₹220 per kg in fiscal 2026 because unseasonal rainfall and uneven monsoons in Kerala and Southeast Asia tightened supplies and created a global deficit.

The West Asia conflict has added another layer of pressure by lifting crude-linked inputs such as synthetic rubber, carbon black and nylon tyre cord, while shipping disruptions have stretched supply chains. Together, these factors have widened the gap between cost inflation and realisations.

Even so, demand provides a cushion. Tyre volume growth is expected to normalise to 4-5 per cent in this fiscal after a strong 7-8 per cent expansion last year, with OEM and aftermarket demand each likely to grow 4-5 per cent and exports by 3-4 per cent.

“Sustained demand and peak utilisation have pulled forward the next investment cycle, with tyre makers expected to invest ₹18,000 crore over this fiscal and next — nearly twice the spend of the previous two fiscals. The scale is significant, but phased commissioning, steady demand and a focus on higher-value radial tyres should limit overcapacity risk, while healthy liquidity should keep leverage manageable,” Poonam Upadhyay, Director, Crisil Ratings, said.

The financial flexibility is important because the capex cycle will coincide with a temporary margin trough. Balance sheets of key Indian tyre makers have strengthened over time, and healthy liquidity buffers should allow a balanced mix of debt and internal accruals to fund expansion while keeping key credit metrics under control this fiscal. As pricing actions take full effect and margins recover next fiscal, debt metrics should gradually strengthen.