India’s tyre sector got a solid boost on April 30, 2025, after Ceat Ltd reported better-than-expected Q4FY25 results and issued a bullish guidance for the upcoming fiscal year. The results lifted investor sentiment, resulting in a broad rally in tyre stocks, including MRF, Apollo Tyres, and Balkrishna Industries, which surged between 3% to 9% during intraday trade.

Ceat’s Q4FY25 Performance Exceeds Street Estimates

Ceat reported double-digit revenue growth of over 11%, beating market expectations. This comes despite a minor year-on-year dip in EBITDA and margin. For the quarter ended March 31, 2025:

• Revenue rose over 11% YoY, showcasing strong demand across segments.

• EBITDA stood at ₹388 crore, significantly higher than Nuvama’s forecast of ₹342 crore.

• EBITDA margin came in at 11.3%, again better than the anticipated 10%.

While profitability metrics saw a marginal YoY decline, the operational performance surpassed analyst expectations, indicating strong pricing discipline and volume growth.

Strong FY26 Guidance and Premium Tyre Strategy

Looking ahead, Ceat is optimistic about FY26, forecasting continued double-digit growth, led by the premium segment.

• The company has launched three new premium tyre models.

• While these products are contributing modestly to current volumes, management expects them to scale up significantly in the coming quarters.

• Premium tyres usually offer better margins, and Ceat believes they will be instrumental in gaining market share and enhancing profitability.

This shift toward high-end product lines aligns with broader consumer trends in urban markets, where demand for durable, performance-oriented tyres is growing.

Favourable Raw Material Trends

Another tailwind for the tyre industry is the softening of raw material prices. In the March 2025 quarter:

• Raw material costs remained largely stable, providing margin stability.

• Going forward, Q1FY26 may see a minor dip, but the real margin boost is expected from Q2FY26, when prices are forecast to drop more substantially.

Ceat noted, “While in Q1, the raw material basket may see a minor dip, from Q2 we expect a bigger drop that should support margin expansion.”

This means margin resilience will likely continue, especially if commodity trends remain benign.

Currency Appreciation Adds Another Tailwind

The Indian rupee has appreciated in recent weeks, now hovering around 85, compared to the Q4 average of 87.

• Earlier in 2025, rupee depreciation inflated import costs and weakened inventory valuation.

• The recent appreciation helps tyre manufacturers lower input costs, especially since many rely on imported rubber and chemicals.

With the rupee strengthening, the import bill becomes less expensive, which in turn eases pressure on margins.

Sector-Wide Rally in Tyre Stocks

The strong performance and optimistic commentary from Ceat lifted the entire tyre pack, as investors anticipate sector-wide benefits.

• Ceat shares surged on strong results and outlook.

• Apollo Tyres, MRF, and Balkrishna Industries also saw significant buying interest.

• Analysts believe that rising demand, premiumisation, stable costs, and currency support together form a strong macro backdrop for tyre stocks.

This sectoral momentum is also supported by resilient domestic auto sales, particularly in passenger and commercial vehicle segments, which are primary markets for tyre demand.

Brokerage Reactions and Analyst View

Brokerages were largely positive post Ceat's earnings:

• Nuvama highlighted the strong EBITDA beat as a positive surprise.

• Analysts believe that premium product launches will play a critical role in top-line acceleration.

• The stable to declining cost environment has increased earnings visibility for FY26.

With many global raw material indices stabilizing, brokerages are raising EPS estimates for FY26 and upgrading their price targets across tyre names.

Ceat’s Focus on Innovation and Value-Driven Growth

Ceat’s management emphasized the company's long-term vision of being a premium and innovative tyre brand.

• The new launches cater to high-speed, performance vehicles, which are seeing increased adoption.

• The company is also investing in digital channels and stronger retail distribution, ensuring it remains competitive in both urban and rural markets.

Its strategic direction indicates a shift away from pure volume play to value-led growth, which can deliver sustainable profitability.

Macro Environment Supports Industry Momentum

The Indian economy’s broader resilience, vehicle demand stability, and lower inflationary pressures are boosting consumer sentiment and driving replacement demand in the tyre segment.

In addition:

• Commercial vehicle operators are replacing tyres more frequently as logistics demand remains firm.

• OEM demand continues to stay steady with new vehicle launches across segments.

• Exports remain a key growth lever as global demand improves with easing supply chain disruptions.

These factors combined support a positive structural story for Indian tyre companies in the medium to long term.

Conclusion: Tyre Sector Poised for Strong FY26

The Q4 performance of Ceat and its guidance has created a ripple effect across the tyre industry, reigniting interest among institutional and retail investors. With:

• Premiumisation strategy in motion

• Favourable input cost trends

• Currency support

• Strong domestic demand

• And upbeat sectoral sentiment

The Indian tyre industry appears to be on the cusp of a strong growth cycle in FY26.

Investors looking for auto ancillary exposure might find tyre stocks, especially Ceat, Apollo Tyres, and Balkrishna Industries, as attractive plays over the next 12–18 months.

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