ICICI Securities has reiterated its BUY call on Bharat Heavy Electricals (BHEL), setting a revised target price of Rs 450, implying an upside of approximately 19% from the current market price of Rs 377. BHEL has delivered a decisive earnings outperformance, backed by accelerating execution, margin expansion, and robust order inflows. Revenue surged over 35% year-on-year, while operating profit doubled, signaling a structural turnaround in profitability. The company’s order book strength, combined with a favorable shift toward high-margin projects, positions it for sustained earnings growth over the next two years. With execution expected to scale at a double-digit CAGR and margins improving materially, ICICI Securities sees further valuation re-rating. The stock remains an attractive play on India’s power infrastructure expansion cycle.

Operational Breakthrough: Execution Gains Translate into Earnings Surge

BHEL’s latest quarterly performance reflects a sharp inflection in execution capabilities. The power segment—its core revenue driver—reported a remarkable 54% YoY growth, reaching approximately Rs 95 billion. This surge underscores improved project execution timelines and stronger conversion of order backlog into revenue.

Margin expansion has been equally striking. EBIT margins in the power segment climbed to 20% from just 5% a year ago, highlighting operational efficiency and better cost control. At a consolidated level, EBITDA margins expanded significantly, driven by improved project mix and reduced drag from legacy contracts.

However, the industrial segment remained relatively subdued, delivering flat revenue growth with some margin compression—indicating that the current earnings momentum is predominantly power-driven.

Legacy Drag Eases: New Project Mix Enhances Profitability Visibility

A critical structural shift is underway in BHEL’s order book composition. Older, low-margin projects are gradually tapering off, while newer contracts—executed under improved pricing frameworks—are gaining prominence.

These newer projects are expected to enter peak execution phases in FY27 and FY28, which historically deliver the highest revenue recognition and profitability. This transition is likely to act as a sustained earnings lever over the medium term.

The implication is clear: margin expansion is not cyclical but structural, driven by improved contract quality and execution discipline.

Order Inflows: Sustained Pipeline Strength Reinforces Growth Outlook

BHEL’s order inflow trajectory remains one of the strongest in the capital goods space. The company reported order inflows of approximately Rs 300 billion in Q4FY26, taking the full-year figure to Rs 760 billion.

Additionally, BHEL holds L1 (lowest bidder) status for projects worth nearly Rs 400 billion, providing strong near-term visibility.

Forward outlook remains robust:

Expected order inflows exceeding Rs 700 billion in FY27
Fourth consecutive year of strong order booking
Order book at approximately Rs 2.4 trillion, translating into a 7x book-to-bill ratio

This backlog provides multi-year revenue visibility and underpins execution-led growth.

Financial Performance Snapshot

Below is a structured summary of BHEL’s financial trajectory:

The numbers highlight a compelling earnings trajectory: EBITDA margins are projected to nearly double from FY26 to FY28, while net profit is expected to more than double during the same period.

Earnings Trajectory: Margin Expansion to Drive Profit Upside

The earnings outlook is anchored on two key levers:

Execution ramp-up — Project execution is expected to grow at approximately 13% CAGR between FY26 and FY28.
Operating leverage — Higher utilization and better project mix will drive margin expansion.

ICICI Securities estimates EBITDA margins to reach 9.5% in FY27 and 14.2% in FY28, marking a sharp improvement from current levels.

This combination of volume growth and margin expansion creates a powerful earnings compounding effect.

Sector Tailwinds: Power Demand and Thermal Capacity Revival

BHEL stands at the center of India’s evolving energy landscape. According to sector projections:

India’s peak power demand could reach 375GW by FY32
A significant portion of existing thermal capacity is aging (>40 years)
Government plans include 50GW of thermal capacity addition and 75GW of storage capacity

Given the slow pace of storage deployment, thermal power is expected to remain critical for base-load stability.

This creates a multi-year opportunity pipeline for BHEL, especially in coal-based thermal projects, where the company has a dominant market position.

Valuation Framework: Re-Rating Driven by Earnings Visibility

ICICI Securities has revised its valuation multiple upward, reflecting improved earnings visibility and structural profitability improvement.

The valuation expansion from 30x to 35x multiple reflects growing investor confidence in BHEL’s ability to deliver sustained earnings growth.

Investment Thesis: Why BHEL Remains a Conviction BUY

Key pillars supporting the BUY recommendation:

Strong order book ensuring multi-year revenue visibility
Structural margin improvement driven by better project mix
Accelerating execution cycle
Favorable sector tailwinds from India’s power infrastructure expansion
Potential for continued valuation re-rating

Risks to Monitor

Despite the strong outlook, investors should remain mindful of key risks:

Delays in order inflows during FY27
Execution slippages in large-scale projects
Margin pressure if legacy projects persist longer than expected

Final Word for Investors: A Strategic Play on India’s Power Infrastructure Cycle

BHEL is transitioning from a legacy-heavy, low-margin enterprise into a structurally stronger, execution-driven growth story. With a robust order pipeline, improving margins, and favorable macro tailwinds, the company is well-positioned to deliver sustained earnings expansion.