BHEL execution and margins improve as Rs2.6 trillion order book supports growth

Investment View and Valuation

Prabhudas Lilladher’s October 14, 2026 result update on Bharat Heavy Electricals Limited (BHEL) highlighted a strong Q2FY27 performance, driven by improving execution in both the Power and Industry segments. The broker maintained its REDUCE rating following the recent rally in BHEL shares, despite raising the target price to Rs426 from Rs368.

Prabhudas Lilladher rolled its valuation forward to September 2028E and applied a price-to-earnings multiple of 25 times September 2028E earnings, unchanged from the earlier 25 times March 2028E multiple, while factoring in stronger execution. At the report CMP of Rs464, BHEL traded at 31.6 times FY28E and 24.0 times FY29E earnings. The broker revised FY27E EPS upward by 4.1 per cent to reflect improved execution and margin expansion.

Q2FY27 Financial Performance

BHEL reported Q2FY27 revenue of Rs9,300.4 crore, up 23.8 per cent year on year but 2.7 per cent below Prabhudas Lilladher’s estimate. EBITDA increased 76.6 per cent year on year to Rs1,025.8 crore, 4.1 per cent above the broker’s estimate. EBITDA margin expanded 330 basis points year on year to 11.0 per cent, compared with the estimate of 10.3 per cent, aided by a 595-basis-point improvement in gross margin to 36.5 per cent.

Reported PAT rose 120.2 per cent year on year to Rs809.6 crore and was 13.4 per cent above the broker forecast.

Segment Performance and Execution

The Power segment accounted for 71 per cent of Q2FY27 revenue. Segment revenue grew 17.0 per cent year on year to Rs6,637.9 crore, while EBIT rose 44.6 per cent to Rs858.4 crore. EBIT margin expanded 247 basis points to 12.9 per cent.

The Industry segment delivered revenue growth of 45.0 per cent to Rs2,662.5 crore. EBIT increased 85.2 per cent to Rs518.7 crore, and EBIT margin improved 423 basis points to 19.5 per cent. BHEL achieved capacity addition of 2,260 MW in H1FY27 against its full-year target of 4,790 MW, which the broker views as evidence of improving execution momentum.

Order Book and Growth Opportunities

BHEL’s total order book stood at about Rs2,60,000 crore and provides multi-year revenue visibility. The Power order book was about Rs2,10,000 crore, while the non-thermal order book of about Rs69,500 crore provides diversification beyond thermal power.

Q2FY27 order inflows were about Rs4,000 crore, taking H1FY27 inflows to about Rs30,000 crore. Recent orders included hydroelectric projects such as Heo and Tato-I, and an FR6B gas turbine order.

BHEL is broadening its addressable market through synchronous condensers, green hydrogen electrolysers, HVDC, Green Energy Corridors, defence and rail mobility. The company also plans about Rs500 crore of capex at its HEEP Haridwar unit for manufacturing thermal and nuclear sets.

Forecasts, Drivers and Key Risks

Prabhudas Lilladher’s positive long-term drivers are the large thermal-power order pipeline, diversification into railways, defence, green hydrogen and coal gasification, and a growing exports business.

Key monitorables and risks to the thesis are timely order conversion, sustained execution pace and balance-sheet health.