India’s tyre manufacturers are likely to see their operating margins moderate this fiscal as a sharp rise in raw material costs outpaces staggered price increases, according to Crisil Ratings.
Operating margins for the industry stood at 14.2% last fiscal and are expected to decline by around 200-250 basis points this fiscal, as key input costs have risen 35-40%. However, Crisil expects the pressure to be temporary, with margins likely to recover to 13-13.5% next fiscal as higher prices flow through and input costs stabilise.
Natural rubber, crude-linked inputs drive costs
Natural rubber, which accounts for nearly half of the tyre industry’s raw material costs, rose to around ₹275 per kg in June 2026, from approximately ₹220 per kg in fiscal 2026.
The increase has been driven by unseasonal rainfall and uneven monsoons in Kerala and Southeast Asia, which have tightened supplies and contributed to a global deficit.
The conflict in West Asia has added to cost pressures by pushing up crude-linked inputs such as synthetic rubber, carbon black and nylon tyre cord. Shipping disruptions have also extended supply chains and added to the gap between input costs and tyre realisations.
Crisil Ratings, Senior Director, Anuj Sethi, said the sharp rise in key inputs is likely to compress operating margins by 200-250 basis points this fiscal.
However, he termed the pressure a cost-pass-through lag rather than a structural reset in profitability. Sustained demand and GST rationalisation are allowing manufacturers to implement staggered price increases, he said, adding that margins should recover as these increases flow through, assuming input costs stabilise.
Demand provides cushion
Despite the margin pressure, demand remains supportive for the industry. Tyre volume growth is expected to moderate to 4-5% this fiscal, following a stronger 7-8% expansion last year.
OEM and aftermarket demand are each expected to grow by 4-5%, while exports could expand by 3-4%.
The aftermarket segment accounts for around half of total industry volumes, while OEMs and exports contribute roughly a quarter each. The top six tyre manufacturers account for about 85% of the sector’s ₹1.36 lakh crore revenue recorded last fiscal.
Manufacturers are adopting a calibrated pricing approach, allowing them to absorb part of the cost increase without sharply increasing consumer prices. Crisil said this should help preserve demand momentum.
₹18,000 crore capex cycle
Strong demand and near-peak capacity utilisation are also triggering the next investment cycle for tyre makers.
According to Crisil Ratings, the industry is expected to invest around ₹18,000 crore over this fiscal and next fiscal, nearly twice the expenditure of the previous two fiscals.
Crisil Ratings, Director, Poonam Upadhyay, said sustained demand and peak utilisation have pulled forward the next investment cycle.
The investment is expected to be supported by phased commissioning and a focus on higher-value radial tyres, which should help limit the risk of overcapacity.
Balance sheets remain resilient
The capex cycle is coinciding with a temporary margin trough, but Crisil expects the strong financial position of major tyre manufacturers to provide a cushion.
Healthy liquidity buffers should allow companies to fund expansion through a combination of debt and internal accruals while keeping key credit metrics under control.
As pricing actions take full effect and margins recover next fiscal, debt metrics are also expected to strengthen gradually.
Key risks ahead
The trajectory of raw material prices remains the biggest monitorable for the sector. Developments in West Asia, the pace at which manufacturers pass higher costs to customers and the resilience of replacement and OEM demand will determine the pace of margin recovery.
For now, Crisil expects the tyre industry’s margin compression to remain temporary rather than structural, with demand strength, pricing power and healthy balance sheets providing support through the current cost cycle.