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Strong Q2; execution pick up across segments

We revise our FY27E EPS estimate by +4.1%, factoring in improved execution and margin expansion. BHEL reported a strong Q2FY27 performance, with revenue growth of 23.8% YoY and EBITDA margin improving to 11%, supported by higher gross margins. The Power segment remained the key growth driver, registering 17% YoY revenue growth, underpinned by execution of its robust order book of ~INR2.1trn. Order wins across hydroelectric projects, including Heo and Tato-I, along with an FR6B gas turbine order, further strengthen its presence across hydro and gas-based power generation. BHEL achieved 2,260MW of capacity addition in H1FY27, against its full-year target of 4,790MW, indicating improving execution momentum. The Industrial segment also delivered strong growth, with revenue rising 45% YoY, while a non-thermal order book of ~INR695bn provides meaningful diversification beyond conventional thermal power. Expansion into synchronous condensers, green hydrogen electrolysers, HVDC, Green Energy Corridors, defence and rail mobility further broadens its addressable market. Order inflows stood at ~Rs40bn in Q2FY27, taking H1FY27 inflows to ~Rs300bn, while the sizeable order book (INR2.6trn) and sustained investments across power generation, transmission and infrastructure provide multi-year revenue visibility. Overall, improving execution, margin recovery and diversification beyond thermal power strengthen BHEL’s medium-term growth outlook, although timely order conversion and sustained execution momentum remain key monitorables. The stock is currently trading at P/E of 31.6x/24.0x on FY28E/FY29E. We roll forward to Sep’28E and maintain our ‘Reduce’ rating on the stock given recent rally in the stock price, with a TP of Rs426 (Rs368 earlier) valuing the stock at a PE of 25x Sep’28E (25x Mar’28E earlier) factoring in stronger execution.

Long term view: We believe

1) large thermal power order pipeline

2) diversification into railways, defense, green hydrogen, coal gasification, etc

3) growing exports business augurs well for BHEL. However, timely order conversion execution pace and balance sheet health continues to be key monitorable

Strong execution drove revenue growth, while higher gross margin aided profitability: Standalone revenue grew by 23.8% YoY to Rs93bn (PLe: Rs95.6bn) led by growth in Power segment (+17% YoY to Rs66.4bn) and Industry segment (+45% YoY to Rs26.6bn). Gross margin expanded by 595bps YoY to 36.5% (PLe: 34.0%) likely due to favourable product mix. EBITDA grew 76.6% YoY to Rs10.3bn (PLe: Rs9.9bn) while EBITDA margins expanded 330bps YoY to 11.0% (Ple: 10.3%) driven by higher gross margin. PBT came in at Rs10.8bn (PLe: Rs9.6bn) aided higher other income (+42.9% YoY to Rs2.6bn) and lower finance cost (-36.1% YoY to Rs1.2bn). Adj. PAT increased 120.2% YoY to Rs8.1bn (PLe: Rs7.1bn) driven by a lower effective tax rate of 24.9% (vs. 25.3% in Q2FY26).

Order book stands at ~INR2.6trn (6.8x TTM revenue): Order intake decreased by ~81.8% YoY to ~INR40bn (against slightly higher base). Order book stands at ~INR2.6trn (6.8x TTM revenue), while Thermal/Non-Thermal mix of the order book stands at 73.0%/27.0%

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