BHEL profit return backed by surging order book despite Chinese rivals
India's Bharat Heavy Electricals has snapped a seven-year first-quarter loss streak, but investors must weigh a booming ₹2.6 trillion order book against rising Chinese competition and a 45-times earnings valuation.
Bharat Heavy Electricals Ltd (BHEL) has posted its first June-quarter profit in seven years, capping a 50% share price rally to ₹428 over the past year. The state-owned engineering group reported a net profit of ₹377 crore for Q1FY27, a stark reversal from the prolonged losses that characterized its recent history.
The earnings beat was driven by a 40% revenue surge to ₹7,700 crore and a 200 basis point expansion in gross margins. While sequential Ebitda margins fell to 6.5% from 14.2% in the preceding quarter, this drop reflects the capital goods sector's heavy skew toward fourth-quarter project completions rather than operational deterioration.
The underlying driver for markets is the order book. Q1 inflows doubled year-on-year to ₹26,745 crore, pushing the total backlog up 27% to ₹2.6 trillion. At 7.2 times trailing 12-month sales, this pipeline provides exceptional revenue visibility. Execution is finally catching up with demand as dormant vendors from the FY19-23 slump reactivate. “(Bhel’s) policy of advance preparatory action in anticipation of orders is enabling it to compress delivery timelines,” said Antique Stock Broking.
A structural shift in the order mix is accelerating the margin recovery. Private-sector power projects now make up 28% of the backlog, up from near zero in FY23. “As a larger share of newer, relatively higher-margin private projects enters the revenue recognition phase, we reckon BHEL’s turnaround shall become more evident H2FY27 onwards,” noted Nuvama Institutional Equities. Furthermore, the industry segment—spanning transmission, railways, and defence—generates a quarter of revenue and commands a 13.7% Ebit margin, well above the 9.5% posted by the power division.
The upbeat outlook faces a specific competitive threat. New Delhi has permitted four Chinese equipment manufacturers to bid on public transmission tenders for two years to address domestic capacity shortages as the country expands its solar network. This could pressure BHEL's margins in a key growth vertical. With the stock near an all-time high and trading at roughly 45 times estimated FY27 earnings, investors are pricing in flawless execution. Any disruption from new Chinese rivals could test that premium.
