Reduce BHEL Ltd For Target Rs.321 by Prabhudas Liladhar Capital Ltd
Healthy Q4; execution momentum remains monitorable
We revise our FY28E EPS estimate by +7.8% accounting for improvement in execution and normalization in provision. BHEL delivered a strong Q4FY26 performance with revenue growth of 36.9% YoY, driven by robust execution of its order backlog, while EBITDA margin expanded 499bps YoY to 14.2% supported by lower other expenses. The Power segment remained the key growth driver, with ~54% YoY revenue growth backed by execution of a healthy order book of ~INR1.7trn, while order book further strengthen by recent key order win of INR135bn EPC package (3×800MW) from NTPC in Q4. BHEL has successfully commissioned 8.9GW of power capacity in FY26 reinforcing its positioning in the thermal space. The Industrial segment witnessed some moderation in growth, although order inflows remained healthy (~INR54bn) driven by across sectors such as transmission, transportation, process industries and industrial equipment. Recent easing in localisation norms for HVDC (LCC) is expected to support execution of key HVDC projects. With a robust order book of ~INR2.4trn, BHEL offers strong multi-year revenue visibility; however, sustained execution momentum and provision numbers remain a key monitorable. The stock is currently trading at P/E of 40.4x/27.0x on FY27E/FY28E. We roll forward to Mar’28E and downgrade the stock from ‘Hold’ to ‘Reduce’ given the recent rally in stock, with a TP of Rs321 (Rs245 earlier) valuing the stock at a PE of 23x Mar’28E (22x Sep’27E earlier). Downgrade to ‘Reduce’
Long term view:
We believe
1) large thermal power order pipeline
2) diversification into railways, defense, green hydrogen, coal gasification, etc
3) growing spares & services business could augurs well for BHEL. However, execution pace and balance sheet health continues to be key monitorable
Healthy execution in power helped improved operating performance:
Standalone revenue grew by 36.9% YoY to INR123.1bn (PLe: INR113.6bn) led by growth in Power segments (+53.6% YoY to INR95.1bn) while Industry segments growth remains flattish YoY to INR28.0bn. Gross margin expanded by 104bps YoY to 34.8% (PLe: 34.0%) likely due to favourable product mix. EBITDA increased by 110.8% YoY to INR17.5bn (PLe: INR11.9bn) with EBITDA margins expanded by 500bps YoY to 14.2% (Ple: 10.4%) aided by lower other expenses (-19% YoY to INR5.4bn) and gross margin expansion partially offset by higher employee expenses (+30%YoY). Adj. PAT increased by 154.5% to INR12.8bn (PLe: INR8bn) driven by increase in other income (+58.8% YoY to INR2.5bn) and lower effective rate (-299bps YoY to 25.4%).
Order book stands at ~INR2.4trn (7.1x TTM revenue):
Order intake decreased by ~33% YoY to ~INR300bn (against higher base in Q4FY25). Order book stands at ~INR2.4trn (7.1x TTM revenue) comprising of Power (80%), Industry (18%) and Exports (1%).
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