Despite declining margins, leading tire manufacturers in India are accelerating capacity expansion. This growth is driven by high demand for both replacement and original equipment, leading to several production sites approaching maximum utilization.
According to Crisil Ratings data, six of the largest tire manufacturers, which account for about 85 percent of the sector's revenue of approximately 1.36 lakh crore rupees in fiscal year 2026, plan to invest around 18,000 crore rupees over fiscal years 2027 and 2028. This projected amount is nearly double the capital expenditure made by these companies in the previous two fiscal years.
According to Punam Upadhyay, Director at Crisil Ratings, 'sustained demand and peak utilization have pushed the next investment cycle forward.' She added that phased commissioning, stable demand, and a focus on higher-value radial tires should limit the risk of overproduction. Furthermore, healthy liquidity will help maintain a manageable debt burden.
The investment cycle is reflected in plans announced by individual companies following the publication of quarterly results for the April-June period. CEAT maintained its capital expenditure forecast for the 2027 fiscal year at 1,300–1,400 crore rupees. The company reported that utilization remained high at most CEAT plants during the June quarter. The board of directors also approved an investment of 1,205 crore rupees to increase production capacity by approximately 53,000 two-wheeler tires per day.
Apollo Tyres intends to spend over 3,000 crore rupees in the 2027 fiscal year. Its consolidated capital expenditure was 650 crore rupees in the first quarter, including about 500 crore rupees in India. The company expects to increase spending over the next two quarters.
JK Tyre is implementing expansion projects worth 4,980 crore rupees for radial tires for passenger cars, trucks, and buses. These projects are expected to increase its production capacity by approximately 24 percent. The company's operations in India operated at a utilization rate of about 95 percent during the June quarter. Capacity was almost fully utilized for truck and bus radial tires, as well as two- and three-wheeler tires, while the utilization for passenger car radial tires was around 95 percent.
Crisil forecasts a 4–5 percent growth in tire production volume in the 2027 fiscal year, after growing by 7–8 percent last year. Demand for original equipment and replacement is projected to grow by 4–5 percent each, and exports may increase by 3–4 percent.
First-quarter results showed higher demand in several segments. CEAT's replacement business grew mid-decade, while the original equipment business showed low double-digit growth.
Apollo Tyres reported a 13 percent growth in replacement tire sales volume, 10 percent in the original equipment segment, and 15 percent in exports. JK Tyre's domestic volumes grew by 25 percent year-on-year, and original equipment volumes increased by 42 percent.
The expansion comes amid tire manufacturers facing sharp increases in raw material costs related to natural rubber and oil-linked commodities. Crisil expects the operating margin of the six manufacturers in its sample to decline to 11.5–12 percent in fiscal year 2027 compared to approximately 14.2 percent in fiscal year 2026. The margin may recover to 13–13.5 percent next year if raw material costs stabilize and price hikes are fully reflected.
Anuj Sethi, Senior Director at Crisil Ratings, noted: 'The sharp rise in key raw material components by 35–40 percent is likely to reduce the operating margin of tire manufacturers by 200–250 basis points this fiscal year, but this is due to a lag in passing on costs, not a structural change in profitability.'
According to Crisil, natural rubber, which accounts for almost half of the industry's raw material costs, rose to about 275 rupees per kg in June 2026 compared to approximately 220 rupees per kg in fiscal year 2026. The rise was attributed to off-season rainfall and uneven monsoons in Kerala and Southeast Asia, leading to supply shortages. The conflict in the Middle East intensified pressure, increasing the cost of oil-linked raw materials such as synthetic rubber, carbon black, and nylon cord for tires, while shipping disruptions affected supply chains.
The impact was visible in the first-quarter results. JK Tyre's consolidated EBITDA margin fell to 6.8 percent from 10.9 percent a year earlier after its raw material basket increased by about 20 percent sequentially. CEAT's consolidated EBITDA margin was 8.6 percent, 238 basis points lower than last year, as raw material costs rose by 16–18 percent sequentially. Apollo Tyres reported a consolidated EBITDA margin of 11.7 percent versus 13.2 percent a year earlier, following an almost 17 percent sequential increase in raw material costs.
Companies anticipate another sequential increase in raw material baskets of 8–10 percent in the September quarter, as products will be manufactured using higher-cost inventory. Manufacturers responded with staggered price increases, especially in the replacement market. CEAT raised prices for replacement tires by about 11 percent cumulatively by the time of the June quarter earnings call. Managing Director and CEO Arnab Banerjee told analysts: 'We need to implement further price increases.'
Apollo Tyres raised prices by about 9 percent on truck and bus radial tires and 11 percent in other categories. Apollo Tyres CFO Gaurav Kumar stated: 'Overall, we require a price hike of about 15–16 percent, whereas we are currently in the above 11 percent range.' He added that one or two more price increases would be necessary. JK Tyre also raised replacement tire prices by about 11 percent cumulatively. The company expects that price increases, cost reductions, and a larger share of premium products will help restore margins in the second half of the year. JK Tyre CFO Sanjeev Aggarwal said: 'We should return to the normal range of 11–13 percent in the second half of the year.'
Crisil believes that strong balance sheets and liquidity will allow major manufacturers to undertake planned investments without significantly weakening their credit profile. Key factors will remain the pace of cost pass-through, the movement in natural rubber prices, and demand following further tire price increases.