Tyre makers step up capacity expansion despite pressure on margins

Near-full capacity utilisation and resilient replacement and original-equipment demand are driving expansion, even as natural rubber and other input costs squeeze margins

India’s leading tyre manufacturers are accelerating capacity expansion despite facing a sharp decline in margins. This comes as strong replacement and original-equipment demand pushes utilisation at several plants close to peak levels.

 

Six leading tyre makers, which account for around 85 per cent of the sector’s ₹1.36 trillion revenue in FY26, are expected to invest nearly ₹18,000 crore over FY27 and FY28, according to CRISIL Ratings.

 

The projected investment is nearly twice the capital expenditure (capex) undertaken by these manufacturers during the previous two financial years.

 

“Sustained demand and peak utilisation has pulled forward the next investment cycle,” said Poonam Upadhyay, director, CRISIL Ratings. Upadhyay said phased commissioning, steady demand and a focus on higher-value radial tyres should limit the risk of overcapacity.

 

Healthy liquidity would also keep leverage manageable, she added.

 

The investment cycle is visible in the plans announced by individual companies post April-June quarter results.

 

Ceat has retained its FY27 capex guidance of ₹1,300–1,400 crore. Capacity utilisation remained high across most categories at Ceat’s plants during the June quarter, the company said. Its board has also approved a ₹1,205-crore investment to add capacity for around 53,000 two-wheeler tyres per day.

 

Apollo Tyres plans to spend more than ₹3,000 crore in FY27. Its consolidated capex stood at ₹650 crore in the first quarter, including around ₹500 crore in India.

 

The company expects spending to increase over the next two quarters.

 

JK Tyre is implementing expansion projects worth ₹4,980 crore across passenger-car and truck-and-bus radial tyres. The projects are expected to increase its capacity by around 24 per cent.

 

Its India operations were running at around 95 per cent capacity utilisation during the June quarter.

 

Capacity was nearly fully utilised in truck-and-bus radial and two- and three-wheeler tyres, while utilisation in passenger-car radial tyres was around 95 per cent.

 

CRISIL expects tyre volumes to grow 4–5 per cent in FY27, following growth of 7–8 per cent last year. Original-equipment and replacement demand are each projected to rise 4–5 per cent, while exports could grow 3–4 per cent.

 

Company performance in the first quarter indicated stronger demand in several segments. Ceat’s replacement business grew in the mid-teens, while its original-equipment business recorded low-teens growth.

 

Apollo Tyres reported volume growth of 13 per cent in replacement tyres, 10 per cent in original equipment and 15 per cent in exports.

 

JK Tyre’s domestic volumes rose 25 per cent year-on-year (Y-o-Y), with original-equipment volumes growing 42 per cent.

 

Margins to remain under pressure amid sharp natural rubber price hikes

 

The expansion comes as tyre makers contend with a sharp increase in natural-rubber and crude-linked input costs.

 

CRISIL expects operating margins of the six manufacturers in its sample to fall to 11.5–12 per cent in FY27 from around 14.2 per cent in FY26.

 

Margins could recover to 13–13.5 per cent next year if input costs stabilise and price increases take full effect.

 

“A sharp 35–40 per cent rise in key inputs is likely to compress tyre makers’ operating margins by 200–250 basis points (bps) in FY27, but this is a cost-pass-through lag rather than a structural profitability reset,” said Anuj Sethi, senior director, CRISIL Ratings.

 

Natural rubber, which accounts for nearly half of the industry’s raw-material costs, rose to around ₹275 per kg in June 2026 from around ₹220 per kg in FY26, according to CRISIL.

 

It attributed the increase to unseasonal rainfall and uneven monsoons in Kerala and Southeast Asia, which tightened supplies.

 

The West Asia conflict added to the pressure by raising the cost of crude-linked inputs such as synthetic rubber, carbon black and nylon tyre cord, while shipping disruptions affected supply chains.

 

The impact was visible in first-quarter results. JK Tyre’s consolidated earnings before interest, taxes, depreciation and amortisation (Ebitda) margin fell to 6.8 per cent from 10.9 per cent a year earlier after its raw-material basket increased around 20 per cent sequentially.

 

Ceat’s consolidated Ebitda margin stood at 8.6 per cent, down 238 bps Y-o-Y, as raw-material costs rose 16–18 per cent sequentially.

 

Apollo Tyres reported a consolidated Ebitda margin of 11.7 per cent, against 13.2 per cent a year earlier, following a nearly 17 per cent sequential increase in input costs.

 

Companies expect another 8–10 per cent sequential increase in their raw-material basket during the September quarter as higher-cost inventory enters production.

 

Manufacturers have responded with staggered price increases, particularly in the replacement market.

 

Ceat had increased replacement tyre prices by around 11 per cent cumulatively by the time of its June-quarter earnings call.

 

“We have to take further price hikes,” managing director (MD) and chief executive officer (CEO) Arnab Banerjee told analysts.

 

Apollo Tyres had raised prices by around 9 per cent in truck-and-bus radial tyres and 11 per cent in other categories.

 

“Overall, what we need is about a 15-16 per cent price increase, whereas we are currently at the 11 per cent-plus zone,” Apollo Tyres chief financial officer (CFO) Gaurav Kumar said. At least one or two more price increases would be required, he added.

 

JK Tyre had also raised replacement tyre prices cumulatively by around 11 per cent. The company expects price increases, cost reductions and a greater share of premium products to help margins recover during the second half.

 

“We should be able to come back to the normal range of 11 per cent to 13 per cent in the second half,” JK Tyre CFO Sanjeev Aggarwal said.

 

CRISIL said strong balance sheets and liquidity should allow major manufacturers to undertake planned investments without materially weakening their credit profiles.

 

The pace of cost pass-through, movement in natural-rubber prices and demand following further tyre-price increases will remain key factors.