India’s tyre sector will see steady revenue growth of 7-8 per cent this year, driven by replacement demand that accounts for half of annual sales, even as off take by original equipment manufacturers (OEMs) will likely be subdued and exports steady.
Rising premiumisation is expected to give a slight leg-up to realisations. However, escalating trade tensions and the risk of dumping by Chinese producers diverting inventories because of US tariffs could pose challenges.
Operating profitability is likely to remain steady at 13-13.5 per cent, supported by stable input costs and healthy capacity utilisation. This, along with strong accruals, lean balance sheets and calibrated capital spending should help sustain the sector’s stable credit outlook.
Our analysis of India’s top six tyre makers, catering to all vehicle segments and accounting for 85 per cent of the sector’s Rs 1 lakh crore revenue, indicates as much. Domestic demand remains the mainstay, propelling 75 per cent of total volume with exports making up the rest.
Crisil Ratings, senior director Anuj Sethi, said, “Volume growth is seen at 5-6 per cent this fiscal, mirroring last fiscal. The replacement segment (accounting for 50 per cent of volume) is set to grow 6-7 per cent on the back of a large vehicle base, strong freight movement and rural recovery. OEM volume (25%) will likely rise 3-4 per cent supported by steady two-wheeler and tractor sales, and modest growth in passenger vehicles and commercial vehicles. Export volume (25 per cent) is expected to grow 4-5%, supported by demand from Europe, Africa and Latin America.”
The export momentum, however, comes with risks. The US, accounting for 17 per cent of India’s tyre export volume last fiscal, and 4-5 per cent of overall industry volume, has imposed reciprocal tariffs on several Indian goods, potentially eroding price competitiveness. And steep US tariffs limit China’s access to that market, raising the risk of excess supply being diverted into price-sensitive markets such as India.
To curb cheap imports, India imposes anti-dumping and countervailing duties, including a 17.57 per cent levy, on large truck and bus radials from China. However, a broader influx of low-cost tyres across other segments could pressure domestic realisations without timely safeguards.
Besides, stiff competition in the replacement market will keep operating profitability range bound at 13.0-13.5 per cent this fiscal. With nearly half of the raw material imported, the sector is exposed to global prices and fluctuations in foreign exchange rates.
In fiscal 2025, natural rubber prices surged 8-10 per cent owing to supply disruptions1 and as prices of crude-linked inputs such as synthetic rubber and carbon black rose 10-12 per cent. This led to margin erosion by 300 basis points given the limited cost pass-through in the OEM and replacement segments.
Says Poonam Upadhyay, director, Crisil Ratings, “India’s tyre sector, grappling with margin pressure, could see price competition intensify if US tariffs push low-cost Chinese products being dumped. Competitive intensity is already capping realisations in the replacement segment, so the risk of prolonged under-recovery of input cost remains high. To counter, manufacturers are likely to maintain capital expenditure (capex) at Rs 6,000 crore this fiscal, focused on high-utilisation passenger car radials and two-wheeler capacities, along with automation and backward integration to improve cost efficiency and protect profitability.”
Despite sustained capex intensity, the capex-to-EBITDA is projected 0.5 time, in line with last fiscal strong cash accrual and conservative capital structure will keep balance sheets healthy and credit profiles stable. Interest coverage and debt to Ebitda ratio are expected to improve to 8.0 times and 1.0 time, respectively, from 7.0 times and 1.3 times last fiscal.
All said, the trajectory of crude oil and natural rubber prices, evolving global trade dynamics, especially the impact of US tariffs and the risk of Chinese dumping into India, and demand trends across domestic replacement and OEM segments will remain monitorable. ANI
