For BHEL, a muted order inflow upset the apple cart
Bharat Heavy Electricals Ltd's (BHEL) shares fell 5% on Thursday, after hitting a new 52-week high of ₹464 on Wednesday. The U-turn in investor sentiment was in reaction to order inflows sliding to a multi-quarter low of ₹4,000 crore in the September quarter (Q2FY27) from ₹26,700 crore in Q1FY27.
The decline was due to a temporary lull in large thermal power orders. While BHEL’s order book at ₹2.6 trillion at the end of Q2 is equivalent to about 6.8 times its trailing twelve months revenue, which is robust, whether the Q2 decline is a blip or a trend is monitorable.
Its significant exposure to thermal power amid rising preference for renewable energy in India, has been a lingering concern for investors. Global research house CLSA cautions that the entry of Chinese suppliers, JSW Toshiba, L&T and Thermax into BHEL’s core thermal equipment segment question its market dominance, and its order backlog looks to have peaked, while the stock is pricing in a lot more. So far in CY26, the stock has rallied 55%.
Strong earnings
BHEL fared well on other parameters in Q2FY27. Revenue rose 24% year-on-year to ₹9,300 crore, beating consensus estimates aided by execution ramp-up of newer and better-priced orders. Ebitda surged 77% year-on-year to ₹1,026 crore and Ebitda margin expanded over 300 bps year-on-year to 11% ahead of 8.5% consensus estimate, aided by 600 bps of gross margin expansion.
In H1FY27, revenue rose 31% to ₹17,000 crore while Ebitda increased to ₹1,530 crore against barely ₹44 crore a year ago. These positives prompted earnings upgrades by some domestic brokerages. JM Financial Institutional Securities revised its FY28 and FY29 Ebitda estimates upwards by 8.3% and 5.5%, respectively, adding that BHEL has started hiring after almost 15 years.
Further, BHEL announced a capital expenditure of ₹500 crore for an additional manufacturing unit at Haridwar. It is also increasingly diversifying towards transmission, rail transportation, coal, gasification, defence, industrial products sectors, to reduce dependence on thermal power. But its FY27 price-to-earnings multiple of 42, as per Bloomberg, does not lend comfort amid shrinking order inflows. The management said overall, 2,260MW capacity was added during H1FY27, against a target of 4,790 MW in FY27. An improvement in capacity addition in H2FY27 would be key.