BHEL Posts Strong Q2FY26 Turnaround
Bharat Heavy Electricals Limited (BHEL) was able to make a complete turnaround in Q2FY26 by registering a net profit (PAT) of ₹375 crore against ₹106 crore during the same period last year and loss in Q1FY26.
Operating performance witnessed a resurgence with EBITDA doubling year-on-year and beating analyst expectations by 31%, supported by EBITDA margins of 7.7%. The gains were also supported by lower operating provisions (₹10 crore in H1FY26 versus ₹170 crore last year) and forex profits of ₹270 crore (₹86.7 crore in Q2 FY25).
Revenue rose 14% year on year, just slightly under expectations; gross margin was down to 30.6% from 32.7%, while PAT margin rose up to 4.9% from 1.5%, denoting better profitability despite increased input costs.
Nuvama’s Take: FY26 to be a “Clean-Up Year”
According to Nuvama Institutional Equities, FY26 marks a critical “clean-up year” for BHEL, as the company wraps up several legacy low-margin projects. The brokerage expects FY27 to witness a sharp rebound in margins, led by the execution of high-margin orders and the benefits of operating leverage.
While maintaining a ‘Buy’ rating, Nuvama revised its earnings outlook, trimming FY26E and FY28E EPS by 22% and 16%, respectively. The adjustments reflect a reduced FY26 operating margin forecast of 6.9% (earlier 8.4%) and potential cost pressures linked to the Eighth Pay Commission in FY28.
Despite the near-term recalibration, the brokerage raised its target price to ₹353 (from ₹335), applying a 25x FY28E earnings multiple, underscoring confidence in the company’s long-term margin expansion story.
Segment-Wise Performance Snapshot
- Power Segment: Revenue grew 12.9% YoY, with EBIT margin improving to 10.5% (from 6.7% in Q1FY25).
- Industrial Segment: Revenue rose 18% YoY, with EBIT margin expanding to 15.3% (from 13.9%).
During the quarter, BHEL commissioned 1,630 MW of projects, including major developments like Yadadri TPS, Khurja STPP, and Punatsangchhu-II HEP.
Order inflows reached ₹22,000 crore, down 30% YoY due to a high base, taking the total order book to ₹2.2 lakh crore — about 7.8x FY25 revenue. The company expects most low-margin projects to be completed by FY26, paving the way for stronger execution, cash flow recovery, and improved margins from FY27 onwards.
Growth Outlook and Key Triggers
Nuvama forecasts EBITDA margins to rise to ~14% by FY27–FY28, compared to 4.4% in FY25, driven by:
- Execution of a ₹2.2 lakh crore order book (80% power sector)
- 25–30 GW of new projects expected over the next 18–36 months
- Operating leverage and cost optimization measures
Key triggers to watch:
- Timely completion of ongoing projects
- Expansion in non-thermal segments (railways, defence, hydrogen)
- Closure of legacy low-margin orders
- Margin recovery and stronger cash flows from FY27 onward
Outlook:
With a robust project pipeline, improving cost efficiency, and favorable industry tailwinds, BHEL appears poised for a sustainable turnaround. FY26 may be a year of consolidation, but FY27 could mark the beginning of a margin expansion cycle, reinforcing Nuvama’s bullish stance on the stock.
