Tyre makers’ margins to fall to 12% as raw material costs outpace price hikes: Crisil

Tyre makers' operating margins are likely to moderate to around 12% this fiscal from 14.2% last fiscal as a sharp rise in raw material costs outpaces staggered price hikes, Crisil Ratings said.

A 35-40% rise in key inputs, led by natural rubber and crude-linked materials, is likely to compress margins by 200-250 basis points in 2026-27, it said.

"A sharp 35-40% 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," said Anuj Sethi, Senior Director, Crisil Ratings.

The rating agency expects margins to recover to 13-13.5% next fiscal as price increases fully flow through and input costs stabilise.

Crisil Ratings analysed the top six tyre makers, which account for around 85% of the industry's revenue of about ₹1.36 lakh crore last fiscal.

Natural rubber, which accounts for nearly half of tyre makers' raw material costs, rose to around ₹275 per kg in June 2026 from about ₹220 per kg in fiscal 2026.

Unseasonal rainfall and uneven monsoons in Kerala and Southeast Asia have tightened supplies and contributed to a global deficit in natural rubber, the agency said.

The West Asia conflict has added to the pressure by pushing up crude-linked inputs such as synthetic rubber, carbon black and nylon tyre cord, besides causing shipping disruptions.

Tyre makers, however, are expected to benefit from resilient demand, allowing them to stagger price increases rather than pass on the entire cost burden immediately.

Tyre volume growth is expected to moderate to 4-5% this fiscal from 7-8% last fiscal, with both original equipment manufacturers (OEMs) and replacement demand likely to grow 4-5%.

Aftermarket demand accounts for around half of total industry volumes, while OEMs and exports contribute about a quarter each.

The sustained demand and near-peak capacity utilisation are also prompting tyre makers to embark on a fresh investment cycle.

Tyre companies are expected to invest around ₹18,000 crore over this fiscal and the next, nearly twice the amount spent in the previous two fiscals, Crisil Ratings said.

"Sustained demand and peak utilisation has 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," said Poonam Upadhyay, Director, Crisil Ratings.

She said phased commissioning, steady demand and a focus on higher-value radial tyres should limit the risk of overcapacity, while healthy liquidity would keep leverage manageable.

The key monitorables for the sector will be the movement in raw material prices amid developments in West Asia, the pace at which higher costs are passed on to customers and the resilience of replacement and OEM demand, Crisil Ratings said.