ICRA projects moderate expansion for domestic tyre sector while commercial vehicle sales show mixed performance in May 2025
01 Jul 2025 | 4035 Views | By Angitha Suresh
India's tyre industry is set for 6-8% growth in FY2026, driven primarily by replacement demand in the domestic market, according to ICRA's recent industry assessment. The projection comes as the sector navigates headwinds from US tariffs affecting export markets and elevated natural rubber prices constraining margin recovery.
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India's tyre industry is set for 6-8% growth in FY2026, driven primarily by replacement demand in the domestic market, according to ICRA's recent industry assessment. The projection comes as the sector navigates headwinds from US tariffs affecting export markets and elevated natural rubber prices constraining margin recovery.
The rating agency expects operating margins to improve marginally in the current fiscal year following a 290 basis points correction in FY2025. This recovery will be supported by natural rubber price stabilization, manufacturer price increases, and moderate crude oil costs, though natural rubber prices remain elevated despite recent corrections.
Industry revenues grew 3% sequentially in the fourth quarter of FY2025, representing an 8% year-on-year increase. Replacement demand and export volumes supported this growth, while original equipment demand lagged. ICRA forecasts 7-9% revenue growth for major tyre manufacturers in FY2026, driven by domestic volumes and improved product mix.
The export segment faces challenges from US import tariffs, with inflation and competitiveness emerging as key risk factors for Indian manufacturers. Tyre imports declined 9% in FY2025 after recording 15% growth in the previous fiscal year, though this reduction had minimal impact on domestic capacity utilization.
The industry plans moderate capacity expansions over the next three years, with investments of Rs 20,000-25,000 crore expected during this period. This expansion reflects manufacturers' confidence in sustained domestic demand growth despite external market pressures.
In the commercial vehicle sector, May 2025 data revealed mixed performance with wholesale volumes growing marginally by 0.1% year-on-year while retail volumes contracted 3.7%. The divergence reflects high dealership inventory levels across the sector.
ICRA projects 3-5% year-on-year wholesale growth for commercial vehicles in FY2026, supported by infrastructure development initiatives and steady economic conditions. The medium and heavy commercial vehicle segment saw retail sales decline 4.4% year-on-year in May 2025, with wholesale growth projected at 0-3% for FY2026 following a 4% decline in the previous fiscal year.
Light commercial vehicle retail volumes fell 3.2% year-on-year in May, though the segment is expected to achieve 3-5% wholesale growth in FY2026. This growth projection is tempered by consumer preference for pre-owned vehicles in certain market segments.
The bus segment is positioned to outperform other commercial vehicle categories with projected 8-10% year-on-year growth in FY2026, driven by replacement demand across various applications. This growth trajectory stands in contrast to the more modest projections for other commercial vehicle segments.
The outlook for FY2026 indicates that medium and heavy commercial vehicles and light commercial vehicle trucks will see modest growth of 0-3% and 3-5% respectively, while the bus segment leads the recovery across the commercial vehicle industry.