Indian tyre maker MRF posted a near 40% fall in third-quarter profit on Thursday, as higher rubber costs outweighed steady demand for tyre, sending its shares more than 3% lower.

Standalone net profit was INR 3.07 billion (USD 35.06 million) in the quarter ended December 31, missing analysts' average estimate of INR 4.2 billion, according to LSEG data.

Revenue from operations rose 13.8% to INR 68.83 billion, beating analysts' average estimate of INR 67.33 billion, while total expenses increased 20.6%.

MRF makes tyres for vehicles of Hyundai Motor India and Bajaj Auto, among others.

Prices of rubber, a key raw material for tyre makers, rose in the December quarter, analysts said. Cost of materials consumed rose 23.8% to INR 46.34 billion for MRF.

Total vehicle sales in India rose 3.1% year-on-year in the reported quarter, compared with a 19.5% jump in the year-earlier period. This weighed on tyre makers such as MRF, which depend on auto sales for a big chunk of their revenue.

Meanwhile, replacement demand, where customers change old or worn-out tyres with new ones, along with price hikes helped boost revenue, analysts said.