BHEL Has Already Rallied. But the Real Story Is Just Beginning.

Order book not yet peaked, execution accelerating, margins set for a multi-year climb

When a stock runs up 32% in a single month — outpacing both the industrials and power indices by a wide margin — the natural instinct is to ask whether the move is over. JM Financial’s latest note on BHEL is a detailed answer to that question, and the answer is no. Not because the stock is cheap on today’s numbers, but because today’s numbers are, in the brokerage’s view, nowhere close to what BHEL’s financials will look like in two to three years. 

The Order Book Has Not Peaked

The starting point of the JM Financial thesis is the order book — and the argument that the market may be underestimating how much more is coming. Total order book currently stands at Rs 2.4 trillion. Out of 97GW targeted for addition by 2035, 18GW are in tendering and 14GW are in planning. The brokerage expects inflows of Rs 600-700 billion each in FY27 and FY28, and that is before accounting for opportunities in nuclear, defence and coal gasification — segments that represent genuinely new revenue streams for BHEL beyond its traditional thermal franchise.

“Order book has not yet peaked,” the report states plainly — and the pipeline data supports that view.

Execution Is Just Getting Started

Understanding BHEL’s revenue trajectory requires understanding how thermal power projects actually work. A typical project takes five to six years to commission — beginning with 12 to 18 months of civil works before equipment supply even begins. Of the 35GW of projects currently in hand, 10GW from the new cycle that began in September 2022 have only just started, and another 15GW have not started at all. In line with JM Financial’s expectations, BHEL commissioned 8.9GW during the fourth quarter of FY26 alone.

The implication is significant. Revenue is set to compound at 20% over FY25-28, not because of new order wins alone, but because a large pipeline of already-won projects is now entering its active execution phase. The heavy lifting of the early project cycle — civil works, equipment supply — is either done or underway. The commissioning phase, which triggers the final payments and recognises the bulk of revenue, is ahead.

The Thesis

This is where JM Financial’s conviction is most clearly expressed. BHEL’s EBITDA margin stood at just 4.4% in FY25 — a number that reflects the drag of legacy projects won at older, lower realisations. New projects are being won at meaningfully better rates: realisations have moved from Rs 64 million per MW in September 2022 to Rs 70-80 million per MW currently. As the share of these better-priced projects in the execution mix increases, margins will follow.

But the report identifies several additional margin drivers beyond the simple mix shift. Permission to import components from China reduces input costs. A changing product mix in non-thermal orders — covering HVDC transmission, naval guns and nuclear equipment — brings higher-value work into the portfolio. Indigenisation of supercritical technology and operating leverage on a rapidly growing revenue base complete the picture. “Permission to import from China, change in product mix in non-thermal orders, indigenisation of supercritical and operating leverage should propel margin to mid-teens in two to three years,” the report says.

The base case has EBITDA margin expanding from 4.4% to 11.2% by FY28 — and JM Financial believes even that may prove conservative, flagging a higher probability of a margin beat relative to consensus.

Working Capital Stress Is Set to Ease

One of the less-discussed but important parts of the BHEL story is working capital — and here too, the direction of travel is improving. Large customer advances, typically around 10% on orders from the Rs 1.7 trillion backlog, are flowing in. The commissioning of legacy projects triggers final payment tranches of 5-10%. And new projects, won on better commercial terms, come with more favourable payment structures from the outset. JM Financial expects financial leverage to kick in and interest expense pressure to ease from FY27 onwards.

Thermal Has a Longer Runway 

There is a structural argument embedded in the JM Financial note that is easy to miss: thermal power does not have zero terminal value. Fifty gigawatts of plants will complete their useful life by 2035, and 88GW by 2047. India will need 170-180GW of new projects just to maintain its installed base by that date — before accounting for demand growth. The brokerage expects the government to increase capacity addition targets around FY28-29, opening another wave of ordering that would extend BHEL’s visibility well beyond the current cycle.

What JM Financial Thinks It Is Worth

The valuation multiple has been raised from 30x to 32x FY28E EPS — a premium the brokerage argues is warranted given the earnings upgrade cycle it anticipates. “We see a higher probability of margin beat, making it a case for an earnings upgrade and re-rating,” the report says.

BHEL is a classic operating leverage story — the kind where the numbers look uninspiring today precisely because the business is in the early stages of a multi-year margin recovery. Revenue compounding at 20%, EBITDA growing at 63%, EPS potentially doubling, and RoE moving from 2.2% toward the 15% range.