Execution momentum accelerates …
About the stock: BHEL is one of the largest engineering and manufacturing company of its kind in India engaged in design, engineering, construction, testing, commissioning and servicing of a wide range of products and services with over 180 product offerings to meet the ever-growing needs of the core sectors of economy.
• It operates in Power (~75% revenue mix) and Industrial (~25%) sector largely in India.
• The stock is well placed to gain from the need for building base load thermal coupled with strong revenue visibility in the medium term.
Q1FY27 performance: Bharat Heavy Electricals Ltd. (BHEL) reported a robust Q1FY27 performance, with revenue increasing 40.3% YoY to ₹7,697.7 crore (vs. ₹5,486.9 crore), driven by strong execution in the Power segment. Power revenue grew 51.8% YoY to ₹5,919.5 crore, while the industry segment reported 12.0% YoY growth to ₹1,778.2 crore. EBITDA improved to ₹503.9 crore from a loss of ₹537.1 crore in Q1FY26, with EBITDA margin expanding to 6.6% from -9.8%. PAT stood at ₹381.9 crore against a loss of ₹454.9 crore in the corresponding quarter last year, while PAT margin improved to 5.0% from -8.3%.
Investment Rationale:
• Record order book provides strong multi-year visibility: BHEL reported a strong order inflow of ₹26,745 crore in Q1FY27, driven by large thermal EPC wins, its largest-ever export gas turbine package, and healthy order additions across nuclear, transmission, defence, railways, and oil & gas. This resulted in a record order book backlog of ₹2.60 lakh crore (+27% YoY), providing revenue visibility for the medium to long term. The order book remains well diversified, with 81% from the power segment and increasing contribution from high-growth non-thermal businesses, with sizeable non-thermal orders including nuclear (~₹12,000 crore), transmission (~₹14,000 crore), transportation (~₹15,000 crore), defence (~₹7,000 crore) and coal gasification (~₹8,000 crore). The diversified backlog should support sustained revenue growth, improve execution flexibility and reduce dependence on conventional thermal projects over the medium term.
• Execution-led margin expansion supported by operating leverage and a favourable business mix: BHEL’s turnaround is gaining momentum, with Q1FY27 revenue rising 40% YoY to ₹7,698 crore, while EBITDA turned positive at ₹735 crore and PAT at ₹382 crore, reflecting the benefits of higher execution and improved project profitability. We believe margins are at the beginning of a structural upcycle, driven by operating leverage as execution accelerates on the ₹2.6 lakh crore order book, a richer mix of higher-margin businesses such as spares & services, nuclear, defence, transmission and exports, improved project execution and milestone billing leading to lower cost overruns, better fixed-cost absorption with higher manufacturing utilisation, and stronger cash generation reducing working capital costs. We expect BHEL to achieve order inflows of over ₹70,000 crore in FY27, supported by a robust pipeline across thermal power, nuclear, transmission, defence and industrial businesses and EBITDA margin to expand from 6.9% in FY26 to 11.5% by FY28E.
Rating and Target Price
• We expect the revenues and PAT to grow at a CAGR of ~30.5% and 90% over FY26- FY28E. This will also improve ROCE from mid-single digit to ~16.7% ROCE in FY28E. Hence, we rate the stock buy with fair value of ₹575 (35x FY28E EPS).
