Tolins Tyres guided 20% EBITDA margin 18 months ago. Now it's 10-13%.
The same GST cut the company called transformative is now blamed for destroying retreading economics and compressing margins by half.
What's new
- FY26 EBITDA margin fell to 14.6%, down 180 bps year-on-year despite 12% revenue growth.
- Management's new structural margin target is 10-13%, halved from the ~20% guided in Nov 2024.
- Working capital ballooned to ₹300 cr from ₹230 cr, with receivables stretched to 5-6 months from a normal 3-4.
- UAE plant utilization halved to 50% after the US tariff advantage that justified it disappeared.
Themes from the call
Demand
Tyre production rose 36% but revenue grew only 12%, indicating 18-20% unit pricing erosion as new tyres became price-competitive with retreading.
Margins
GST parity between new tyres (18%) and retread materials (18%) eliminated a historical 30-40% cost advantage, with agricultural retreading hit by a 13-point tax disadvantage.
Working capital
The working-capital-to-sales ratio hit 92% as receivables stretched to 5-6 months, a level management calls temporary but has no timeline to fix.
Guidance watch
- FY27 guidance is to merely match FY26 levels, pending a market recovery that management puts vaguely at 'post-Q2'.
- The company petitioned the Ministry of Finance to lower GST on retread materials to 5%, but has no commitment from the GST Council.
Risk flags
- The core retreading business faces a structural tax disadvantage that management's own lobbying has yet to resolve.
- Working capital at 92% of revenue is consuming cash, with management unable to provide a date for normalization.
- The UAE facility's strategic rationale (US tariff arbitrage) has collapsed, and the local market is too thin to absorb volume.
Key quotes
-
"The reduction of GST of new tyres from 28% to 18%... marks a transformative step for the sector."
— Tolins Tyres management, Nov 2025 call -
"For new tyres in the agricultural segment, it is 5%, while retreading agricultural tyres is taxed at 18%. That 13% additional cost on the GST foundation has diminished the feasibility."
— Tolins Tyres management, Jun 2026 call
The brief
Eighteen months ago, Tolins Tyres told investors a GST cut on new tyres was a 'transformative step'. This quarter it blamed that exact policy for destroying the economics of its core retreading business. The arithmetic is simple: new tyres and retread materials are now both taxed at 18%, erasing a 30-40% cost advantage that was the entire business model. In agriculture, the gap is worse, a 13-point tax penalty on retreading versus a new tyre purchase.
The margin damage is real. FY26 EBITDA margins fell to 14.6%, and management quietly halved its structural margin guidance from ~20% to 10-13%. The company is still making tyres, production rose 36%, but it's making less money on each one. Pricing erosion ran to 18-20% unit-level. Revenue grew 12% on that 36% volume jump.
Working capital tells the same story of strain. It ballooned to ₹300 cr, a 92% ratio to sales, as receivables stretched to 5-6 months. Management calls this temporary, but couldn't put a date on when credit terms would normalize. The UAE expansion, once pitched as a US export play, has lost its tariff rationale and is running at half capacity on credit risk concerns. Tolins is now petitioning the GST Council for relief. It has no assurance it will come. The business has scale and low debt, but the policy headwind it once celebrated is now the central risk to the thesis.
Tolins called the GST cut transformative. It transformed the margins from 20% to 10-13%.