Indian tyre companies are staring at a potential dual cost pinch scenario that can dent their growth prospects. The cost of natural rubber has been rising over the last two months amid a global supply crunch. Extreme weather conditions in major Southeast Asian nations have disrupted natural rubber production.
From ₹18,500 per 100 kilograms in January, natural rubber price has risen to ₹21,600 in March so far.
Soaring crude oil prices would add to this pain. Since the Iran-US-Israel conflict broke out, Brent crude oil has increased by 17% to around $87 a barrel on fears of a supply shock.
Natural rubber accounts for 30% of the raw material mix for tyre makers, 70% is dominated by crude-linked derivatives synthetic rubber (20%), carbon black (25%), and fabric (10%), according to Icra Ltd.
Plus, the Indian rupee’s depreciation to 91.88 against the US dollar would inflate import cost of these raw materials. “Tyres sector is the largest consumer of natural rubber in India, accounting for 65–70% of overall consumption; about 55-60% of natural rubber demand is met from local production, and the balance through imports,” said Srikumar Krishnamurthy, senior vice president and co-group head, corporate ratings, Icra.
The downside risks to the sector’s profitability have increased and may rise further if the ongoing conflict prolongs. Profit estimates of tyre companies are highly sensitive to the change in raw material costs.
The impact of rising costs on margins usually comes with a lag, depending on inventory levels. Sure, price hikes can be taken to protect margins, but prevailing competitive intensity would limit that ability.
Plus, hikes may come at the expense of market share. If Brent crude remains around $80 a barrel and domestic natural rubber stays at around ₹220 per kilogram for the next three-six months, CLSA estimates a 400 basis points gross-margin hit for Indian tyre makers, even after assuming a staggered 4% price hike in the replacement market and full pass-through in original equipment manufacturer (OEMs).
Tyre companies saw sequential volume recovery in the December quarter (Q3FY26) led by robust domestic demand across OEM and replacement segments, supported by rationalization of goods and services tax rate, festive season and improving rural traction. Better product mix, relatively benign raw material costs and operating leverage aided margin expansion.
But the ride seems turbulent in Q4. During the Q3 earnings call, Ceat cautioned of a sequential margin impact of 100–150 basis points in Q4 due to currency movements and higher international rubber prices.
Meanwhile, JK Tyre & Industries was confident of absorbing a 1–2% uptick in raw material cost via premiumization and operating leverage.
Despite increased input costs, JK targets Ebitda margin sustaining at 13–15% in Q4 and FY27. However, now this optimism could be put to the test.
India’s tyre industry has limited raw material dependence on West Asia, with imports largely sourced from Southeast Asia, even so, the spillover effect could be felt in Q4FY26 in other forms.
“The more immediate impact of the current West Asia disruption is likely to be logistics-related, with higher freight and insurance costs affecting both imports and exports," said Poonam Upadhyay, director, Crisil Ratings. "This could start reflecting in March export shipments, particularly as exports account for about 25% of the tyre industry’s total volumes.”
So far in 2026, shares of Ceat, MRF, JK Tyre and Apollo Tyres have declined over 10% each as worries of de-rating linger despite valuations looking reasonable.