Shares of leading tyre manufacturers have delivered stronger returns than broader equity benchmarks, supported by a combination of favourable cost dynamics and improving demand conditions. Softer raw material prices, higher demand from automobile manufacturers after the reduction in goods and services tax rates and steady replacement demand have significantly improved sentiment towards the sector.
Over the past six months, the average return generated by major listed players such as MRF, JK Tyre, CEAT and Apollo Tyres stood at around 18 per cent, sharply outperforming benchmark indices that posted only low single-digit gains during the same period.
A key driver behind this rally has been margin expansion led by declining input costs, with early evidence visible in the September quarter earnings. Operating profit margins of major Indian tyre companies rose sequentially by 130 to 240 basis points, while year-on-year improvement ranged between 56 and 322 basis points. On average, margins expanded by nearly 190 basis points across the four companies, marking the strongest quarterly margin performance in at least five quarters.
Raw material costs as a share of sales declined during the quarter and this trend is expected to continue into the December quarter. Natural rubber prices have dropped by about 10 per cent since early September, while crude oil prices have declined by over 13 per cent. In addition to natural rubber, key inputs such as synthetic rubber, nylon tyre cord and carbon black, which are linked to crude derivatives, are also expected to witness softer pricing, further supporting profitability.
Demand momentum from the automobile sector has added another layer of support. The auto industry recorded strong performance in November 2025 across passenger vehicles, two-wheelers, commercial vehicles and tractors. Most large automakers reported double-digit year-on-year growth, driven by festive demand spillover, improved affordability following price cuts, positive rural sentiment and sustained export demand.
Domestic volume growth was led by medium and heavy commercial vehicles and tractors, which expanded by over 30 per cent year-on-year. Light commercial vehicles, two-wheelers and passenger vehicles also posted healthy growth in the range of 18 to 23 per cent, reinforcing the positive demand outlook for tyres.
Against this backdrop, brokerage firms remain optimistic about the sector. Analysts at Anand Rathi Research expect MRF to record steady growth in revenue, operating profit and net profit over the FY25 to FY28 period, supported by strong replacement demand, export growth and market share gains. Margin improvement is expected to be driven by lower rubber prices, softer crude-linked inputs and better realisations from an improved product mix. The brokerage has maintained a buy rating on the stock with a target price of Rs 1,70,000.
Nirmal Bang Research continues to favour CEAT, citing its leadership in the two-wheeler segment, expanding presence in premium categories such as SUVs and higher-capacity motorcycles and a growing international footprint following the Camso acquisition. Analysts believe favourable GST reforms, rising electric vehicle adoption and premiumisation trends will support steady growth in the domestic tyre market. The stock carries a buy rating with a target price of Rs 4,545.
ICICI Direct Research has also retained a positive view on Apollo Tyres, highlighting the benefits of GST 2.0 reforms, expected recovery in margins and improving auto volumes. Strong cash flow generation, disciplined capital expenditure, ongoing debt reduction and healthy return ratios further strengthen the investment case, with a target price of Rs 565.
Geojit Research expects the Indian tyre industry to grow at 7 to 8 per cent in FY26, led by robust replacement demand. It points to market penetration initiatives, digitalisation and operational efficiency improvements as long-term growth drivers for JK Tyre, while cautioning that global uncertainties related to US tariffs and geopolitical tensions remain key risks. The brokerage has maintained a hold rating on the stock with a target price of Rs 391.
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