Accumulate BHEL; target of Rs 226: Prabhudas Lilladher

Prabhudas Lilladher's research report on BHEL

We revise our FY26/27E EPS estimate by -21.5%/-12.4% accounting for higher provisions amid execution pickup going forward. BHEL reported a healthy 32.2% YoY revenue growth in Q3FY25, driven by an execution ramp-up across both the Power and Industry segments. Despite higher other expenses, EBITDA margin expanded by 25 bps YoY to 4.2%. However, the Q3 provision numbers are still awaited. The company continues to benefit from the government’s ~80 GW thermal capacity expansion target by FY28, having already secured ~13 GW in orders this fiscal year. However, the entry of L&T into the thermal power segment could pose a challenge to BHEL’s order inflow in the medium term. Beyond thermal power, BHEL’s strategic diversification into high-growth, nonthermal sectors is gaining momentum, with a major HVDC order strengthening its Industry segment. We believe, execution pace to be key monitorable amid strong order wins in last 12-18 months along with focus on operational efficiency.

Outlook

However, execution pace and operational efficiency will be key monitorable. The stock is trading at a P/E of 24.5x/16.2x on FY26/27E earnings. We maintain ‘Accumulate’ and roll forward to Sep’26E with a revised TP of Rs226 (Rs260 earlier) valuing the stock at a P/E of 22x Sep’26E (25x FY26E earlier).

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