Bharat Heavy Electricals (BHEL) has declined 15.29% so far this year. Despite this sharp correction, JM Financial remains positive on the stock. They have maintained a ‘Buy’ rating on strong power demand and easing cost pressure. They have set a target price of Rs 345, which implies an upside of around 35% from current levels.
However, JM Financial does anticipate a revenue shortfall of Rs 2,500–3,000 crore because of the Middle East conflict. This is primarily on account of the gas shortage as a result of the supply disruption around the Strait of Hormuz.
JM Financial Here is a detailed analysis of the investment rationale driving JM Financial’s recommendation for BHEL.
Strong order book to support BHEL’s growth
The order book of BHEL is strong which is expected to support revenue visibility over the next few years.
“BHEL is set to begin FY27 with an order book of at least Rs 2.5 trillion, and growing, as 24GW of new projects are under planning and may be awarded during FY27–29,” JM Financial noted.
Order inflows have remained robust so far, with year-to-date inflows estimated at Rs 70,000–75,000 crore.
The government’s push for thermal capacity addition is also supporting the outlook. “The government has planned a minimum 97GW of thermal capacity addition by FY32 (18 GW commissioned, 39 GW under construction, 23 GW recently awarded, 24 GW under planning)—and there is high probability of that number being revised upwards—indicating continued momentum of new projects ordering.”
China import easing to improve BHEL’s margins
Another boost to BHEL came from the government after the Ministry of Finance exempted the company from earlier restrictions on sourcing from China. It has allowed BHEL to import 21 critical components from China, including CRGO coils, forgings and seamless pipes.
Earlier restrictions had forced the company to source these components from Europe, leading to higher costs and delays. The easing of norms is expected to improve cost efficiency and speed up project execution. “The exemption is a significant move in expediting project execution and is also margin accretive for BHEL,” JM Financial noted.
Gas shortages pose risk to BHEL’s execution
However the road is not all flowery for BHEL. While the medium term outlook is positive, near and short term challenges persist for BHEL.
One of the biggest near-term risks BHEL faces is due to shortages of key industrial gases.
The company uses RLNG and LPG in large quantities for manufacturing processes such as metal cutting and industrial heating. In addition, helium—used for testing and welding—has also become scarce due to the ongoing Middle East conflict.
JM Financial noted, “Tight supply of helium due to the Middle East conflict is likely to delay production of critical equipment.”
This could impact production at key plants such as Trichy and Haridwar, especially in the fourth quarter.
JM Financial trims FY26 revenue outlook
Due to these disruptions, the brokerage has lowered its FY26 revenue estimate to Rs 31,500 crore from Rs 335 billion earlier. It expects a revenue shortfall of Rs 2500–3000 billion in Q4.
However, margins are likely to remain stable at around 6–7% in FY26.
The brokerage has kept FY27 estimates unchanged for now but cautioned “if the conflict is prolonged, our FY27 numbers could also undergo a downward revision.”
Strong earnings growth likely over next few years
Over the medium term, BHEL is expected to see a sharp improvement in profitability.
EBITDA margins are projected to rise from 4.4% in FY25 to over 10% by FY28. Earnings per share are also expected to grow significantly from Rs 1.5 in FY25 to around Rs 11.5–12 by FY28.
This improvement will be driven by better execution, operating leverage and a strong order pipeline.
Conclusion: Long-term story intact despite near-term headwinds
Analysts believe that while execution challenges may persist in the short term, BHEL’s long-term growth story remains intact.
Strong government support, rising power demand and easing cost pressures are likely to drive earnings recovery over the next few years.