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GST 2.0 Reforms lift the auto space, tyre players outperform

ICICIdirect Research 21 Nov 2025 DISCLAIMER

Government has announced GST 2.0 reforms in Q2’26 resulting in a positive momentum for the auto industry amid reduced GST rates for the sector- across segments and value chain
Tracking these tailwinds, production volume for Q2 was up by 10% YoY wherein, domestic sales volumes grew ~6% YoY, while exports surged ~26% on robust global demand across segments.
Supported by volumes, auto ancillaries posted steady results for the quarter wherein tyre players were the major beneficiaries.
In the tyre space, Rubber & crude derivatives form bulk of raw material costs.
Consequently, tyre manufacturers benefitted from softer input costs (lower by 3-5% QoQ) and stronger replacement demand.
Major players like Apollo Tyres, JK tyres & CEAT saw a gross margin expansion of 130bps, 180 bps & 400 bps respectively which further resulted in EBITDA margin expansion in the range of 60 -260bps.
During the quarter, rubber prices averaged at ~ ₹200/kg which currently trade at ~ ₹186/kg. Even crude oil has also seen a correction of 5% from last quarterly average. Thus, there exists a room for further margin expansion in this domain, however tyre players have guided for flattish RM costs in Q3FY26.  
This Industry is also known to have bloated balance sheets owning to high capex intensity, however, going forward, companies are talking about calibrated capex spends with an increased focus on reducing Debt/EBITDA, which is long term structurally positive.
Most the companies are looking at healthy growth in H2FY26 with the full effect of GST reforms yet to unlock growth.
Looking at the demand scenario, GST reforms, & focus on cash flow generation, our top pick from the tyre space is Apollo tyres (APOTYR), wherein we have a BUY rating on the stock with a target price of ₹ 605, valuing the company at 8x FY27E EV/EBITDA.

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