Policy Noise Hits

BHEL

Stock, Margins and Execution in Focus

Shares of

have dropped nearly 12% in three sessions, rattled by reports of a possible policy shift that could reopen India’s power equipment market to Chinese OEMs. While brokerages believe such a move is unlikely in the current geopolitical climate, investors remain cautious. BHEL’s strong order book and improving margins provide visibility, but execution discipline will be critical to sustain valuations. 1. Policy Concerns and Competitive Landscape - Reports suggest potential easing of restrictions on Chinese power equipment suppliers. - Renewed competition could affect BHEL’s boiler-turbine-generator segment. - Brokerages argue demand for Chinese equipment has already waned due to quality and maintenance issues. - Any relaxation likely aimed at supply-chain easing, not intensifying OEM competition. 2. Order Book Strength - BHEL’s order book stands at ₹2.2 trillion, offering seven years of visibility. - Recent win: ₹5,400 crore coal gasification contract in Odisha. - Order inflows: - FY21–23: ~₹20,000 crore annually - FY24: ₹78,000 crore - FY25: ₹92,000 crore - FY26 expected close to FY25 levels (ICICI Securities). 3. Sector Tailwinds - Beneficiary of government’s renewed push for thermal power capacity addition. - Policy shift comes after excessive reliance on solar contributed to power shortages. - BHEL well-positioned to capitalize on conventional energy expansion. 4. Margin and Earnings Trajectory - FY23–25 average EBITDA margin: 3.4%. - Expected to rise to 7% in FY26 and 9%+ by FY27. - Q2FY26 margin already at 7.7%, showing execution gains. - EPS forecast: ₹9.3 in FY27, vs ₹1.5 in FY25 (six-fold jump). 5. Valuation and Risks - Trades at ~29x FY27 earnings, per Bloomberg consensus. - Elevated multiples hinge on timely execution and margin delivery. - Analysts caution that policy uncertainty and high operating costs remain key risks.