India’s tyre makers are entering FY27 with strong demand visibility, high plant utilisation and a fresh capex cycle. But they are also facing one of the sharpest input cost shocks in recent quarters, triggered by the West Asia crisis, crude-linked raw material volatility, higher natural rubber prices, rupee depreciation and rising logistics costs.
The result is a difficult balancing act. Companies need to add capacity because demand from OEMs and the replacement market remains supportive. At the same time, they need to protect margins through price hikes without weakening demand from vehicle owners, fleet operators and export customers.
Apollo Tyres, CEAT, JK Tyre and Balkrishna Industries, in their March quarter post-earnings conferences, pointed to broadly similar trends: strong FY26 exit momentum, healthy replacement and OEM demand, high capacity utilisation, more capex, and rising cost pressure in Q1FY27.
Strong Demand, But Tougher Cost Cycle
The demand backdrop remains favourable. According to SIAM, FY26 was a record year for the Indian automobile industry, with passenger vehicles, commercial vehicles, three-wheelers and two-wheelers all posting their highest-ever annual domestic sales. Passenger vehicle sales stood at 46.43 lakh units, commercial vehicles at 10.80 lakh units and two-wheelers at 2.17 crore units in FY26.
This has created a strong base for tyre demand, both from OEMs and the replacement market. Tyre replacement demand usually follows vehicle usage, economic activity and the ageing of the vehicle parc.
Apollo Tyres’ Indian operations saw strong double-digit growth in both replacement and OE markets in Q4FY26, compared to last year, said Neeraj Kanwar, Vice Chairman and Managing Director of the company, during an earnings call.
However, the same companies that are optimistic on demand are also cautious on costs.
Apollo said geopolitical developments in West Asia have created uncertainty and added volatility to raw material, energy and logistics costs. “We are closely monitoring the evolving situation and remain focused on responding with agility while maintaining disciplined cost controls,” Kanwar said.
Price Hikes Return
The sharp rise in raw material costs has put price hikes back at the centre of the industry’s FY27 strategy.
Apollo expects raw material costs to rise in the high teens sequentially in Q1FY27. The company has already announced price increases of 6-8 per cent for the current quarter and said more hikes would be needed.
“In terms of outlook, demand remains strong across categories and channels, with April already showing equally strong volume growth, and we expect the same momentum to continue through Q1. At the same time, the geopolitical developments in West Asia have added significant volatility to raw material, energy and logistics costs, which will impact margins in the near term,” Gaurav Kumar, Chief Financial Officer, Apollo Tyres, said.
CEAT has also flagged steep inflation in the raw material basket. The company said raw material prices in Q1FY27 could rise by 15 per cent-plus and may reach closer to 20 per cent by the end of the quarter.
“So, price increase is an imperative,” Arnab Banerjee, Managing Director and Chief Executive Officer, CEAT, said during a post-earnings conference.
CEAT has already taken price increases of around 5 per cent in the replacement market between March and April and had planned another 5 per cent hike through May and June. In OEMs, the price increase comes with a lag, while in international markets, the pass-through also takes time because of order backlogs.
JK Tyre expects raw material prices to rise by 18-20 per cent in Q1FY27 from Q4 levels. The company has taken price hikes of 4-5 per cent in the replacement market and 5-7 per cent in export markets. Another 5-6 per cent hike is underway.
“There has been pressure on input costs due to the ongoing West Asia crisis and weakening of the rupee,” Anshuman Singhania, Managing Director, JK Tyre & Industries, said.
BKT has also started raising prices. The company said raw material prices rose by 4-5 per cent in Q4 and could rise another 7-8 per cent in Q1FY27. It has already taken 3-5 per cent price hikes across geographies and is targeting another 2 per cent increase.
The Margin Test
For tyre companies, the biggest risk is not demand collapse, at least not yet. The bigger concern is the timing mismatch between cost increases and price pass-through.
Replacement market hikes can be taken faster, though they depend on competitive behaviour and demand. OEM hikes usually happen with a lag because pricing is often linked to index-based contracts. Exports also take time because orders already placed at older prices need to be executed.
CEAT said the full impact of raw material inflation will show up in Q1FY27 and will have to be managed through a combination of price increases and cost management in the first half of the year. The company also said it is now facing actual physical disruption, not just sentiment-led volatility.
“While we remain vigilant in our procurement strategies, the combination of new geopolitical risk premiums and physical supply constraints requires more rigorous monitoring of all of these developments on a day-to-day basis,” Kumar Subbiah, Chief Financial Officer, CEAT, said.
The industry is also exposed to crude-linked inputs such as synthetic rubber, carbon black, rubber chemicals and other petrochemical derivatives. Natural rubber is another major cost item. Any sharp increase in crude, rubber or freight costs quickly moves into the tyre raw material basket.
Capex Cycle Continues
Despite margin pressure, tyre makers are not slowing down capacity plans. The reason is simple: utilisation levels are already high.
Apollo said capacity utilisation was at around 90 per cent. For FY27, the company has outlined capex of Rs 3,500 crore, with nearly 80 per cent directed towards growth and capacity expansion projects.
“Through April, we struggled in terms of keeping up with the demand,” Kumar said. “Given the healthy demand outlook, we expect full capacity utilisation and therefore will continue to progress on our planned expansion initiatives.”
CEAT said its capacity utilisation is in the 85-90 per cent range across categories. The company expects to spend Rs 1,300-1,400 crore on growth and normal capex during FY27, though it will calibrate its approach quarter by quarter.
JK Tyre has announced one of the largest expansion programmes in the sector. The company’s board has approved brownfield expansions for PCR and TBR segments at an aggregate cost of Rs 4,980 crore in phases until 2029. This will increase its TBR and PCR capacities by 24 per cent. For FY27, the company has also outlined a capital outlay of around Rs 1,000 crore, including maintenance capex.
“I am pleased to inform you that seeing the momentum in demand growth, the Board, in addition to the expansion projects of Rs 1,130 crore under implementation, has approved to undertake further brownfield expansions for PCR and TBR segments,” Singhania said.
BKT is also expanding. The company has approved capex of ₹1,500-1,800 crore in FY27, along with around ₹200 crore towards maintenance capex, as the tyre maker expands capacity across its off-highway, on-highway and carbon black businesses.
Replacement Market Holds The Key
The replacement market will be the main test for FY27. OEM demand gave tyre makers a strong FY26 exit, but replacement demand will decide whether the industry can pass on price increases without losing momentum.
CEAT expects MHCV replacement demand to remain in high single digits in the near term, supported by increased economic activity, seasonality and an ageing fleet. It also said two-wheeler demand has been encouraging, with consumption surpassing pre-Covid levels.
Apollo also reported high-teens year-on-year volume growth in both replacement and OE segments in India in Q4. JK Tyre said TBR replacement volumes grew 19 per cent year-on-year, while passenger line replacement volumes grew 10 per cent.
But price increases could soften demand, especially in truck and bus tyres, where fleet operators are sensitive to operating costs. Tyres, fuel, and financing are key components of the total cost of ownership for transporters.
CEAT has already warned that demand could moderate once customers experience a 5-10 per cent price hike through Q1.
Exports Recover, But Risks Remain
Exports are offering another growth lever, but the outlook remains uneven.
CEAT said its international business came back strongly in Q4, particularly across passenger tyres in Western Europe and the US. However, the company said sales to the Middle East were severely impacted in Q4. The region accounts for around 15 per cent of CEAT’s international business.
Apollo said Europe is showing promising signs, but the US market looked weak at the start of the year. It also said India and Europe would remain priority markets for capacity allocation, especially in truck tyres, given high utilisation levels.
BKT, which has a large export-led off-highway tyre business, said Europe showed recovery in the second half of FY26 and the Americas market is seeing improving traction. However, the company has stopped giving volume guidance because of geopolitical uncertainty.
Exports are now linked not just to demand, but also to tariffs, shipping routes, freight costs, currency movement and regional risks.
Margin Shields
The industry’s answer to cost pressure is not only price hikes. Companies are also trying to improve product mix, premiumise offerings and invest in efficiency.
CEAT is focusing on 17-inch-plus passenger vehicle tyres, 250cc-plus two-wheeler tyres and premium truck-bus radial products. It also said it has about 29 per cent share in passenger EV OEM tyres and 18 per cent in two-wheeler EV tyres.
JK Tyre said premiumisation is both a market opportunity and a strategic direction. The company is investing in high-performance and technology-led products, supported by R&D and patent filings.
Apollo is investing in R&D, digital tools, AI-led manufacturing, logistics and customer service capabilities. CEAT is building an enterprise data lake and AI labs, while JK Tyre is working on AI-enabled manufacturing and connected plants. BKT’s new capex also includes AI-enabled automation for the on-highway tyre category.
These measures cannot fully offset raw material inflation, but they can help companies protect margins over time.
FY27’s Core Question
The tyre industry is entering FY27 with healthy demand, but the year will test pricing power, cost discipline and capex execution.
The demand drivers are still in place: record vehicle sales, strong replacement demand, rising commercial vehicle utilisation, infrastructure spending and growth in premium vehicle segments. But the cost environment has turned sharply adverse.
If tensions in West Asia ease and commodity prices stabilise, tyre makers could move through the year with manageable margin pressure and strong volume growth. If the crisis persists, companies may need further price hikes, which could test demand in cost-sensitive categories.
For now, the sector is not pulling back from growth. Apollo, CEAT, JK Tyre and BKT are all investing for the next cycle. But FY27 will decide whether the industry can expand capacity, defend margins and keep demand intact at the same time. That is the tightrope India’s tyre makers will have to walk.