BHEL's profit comeback is real. Can its order boom sustain the rally?

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Bharat Heavy Electricals Ltd (BHEL) is having its moment in the sun. The stock is near an all-time high after rising 50% over the past year to ₹428, as improving profitability and execution fuel a turnaround at the state-owned engineering company.

BHEL reported a net profit of ₹377 crore in the June quarter (Q1FY27), its first profit after seven consecutive years of losses in Q1. Consolidated Ebitda came in at ₹504 crore, compared with a loss of ₹537 crore a year earlier, beating Street estimates.

The improvement was driven by strong execution. Revenue rose 40% to ₹7,700 crore, providing significant operating leverage, while gross margin expanded 200 basis points year-on-year as the company executed newer orders that fetch higher realizations.

The latest numbers also need to be viewed against BHEL's sharp seasonality. Capital goods companies typically see a skew towards the fourth quarter, given the project-based nature of their work. In FY26, Q4 alone contributed more than one-third of BHEL's revenue and 77% of its Ebitda. This explains the sequential drop in Ebitda margin to 6.5% in Q1FY27 from 14.2% in Q4FY26.

More recently, execution has improved as a large section of BHEL's vendor base, which had shut down during the lean FY19-23 period, resumed operations. The company's advance planning has also helped.

“(Bhel’s) policy of advance preparatory action in anticipation of orders is enabling it to compress delivery timelines,” said Antique Stock Broking.

The order book shows why investors are betting on a more durable turnaround. BHEL's Q1FY27 order inflow doubled year-on-year to ₹26,745 crore, while its order backlog rose 27% to ₹2.6 trillion. That is equivalent to about 7.2 times its trailing 12-month sales.

The turnaround has been underpinned by a sharp increase in order inflows. These averaged about ₹82,000 crore a year during FY24-26, compared with less than ₹15,000 crore annually during FY19-23.

A revival in private-sector investment in power projects is providing another tailwind. Private projects now account for about 28% of BHEL's order book, compared with negligible contribution 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.

The power segment is not the only source of growth. BHEL is seeing a significant build-up of orders in its industry segment, driven by investments in transmission and distribution, railways and defence. The segment contributes almost one-fourth of revenue and reported an Ebit margin of 13.7% in Q1, well above the 9.5% margin in power.

BHEL is also expanding its product portfolio. It recently signed an agreement with the Indian subsidiary of ThyssenKrupp Nucera AG & Co KGaA to manufacture electrolysers for green hydrogen in India.

The turnaround, however, is not without risks. BHEL could face greater competition in upcoming transmission-project bids after the government allowed four Chinese electrical-equipment companies to participate in public-sector tenders for transmission equipment for two years.

The move comes as India pushes to expand its transmission network to carry solar power from remote regions to consumption centres, amid limited domestic capacity.

BHEL's shares trade at about 45 times estimated FY27 earnings, according to Bloomberg consensus. Continued execution and improving profitability should keep investor interest in the stock alive in the near term.

Ashish Agrawal has been associated with Mint for the last two years and writes for the ‘Mark to Market’ column. He has done his master’s in business administration from IIM Calcutta, specialising in finance and operations. His previous experience includes stints with The Economic Times and JSW Steel, among others. He has over 15 years of experience ...