- EPS guidance drops 18.9% for FY26 and 4.3% for FY27 – a red flag for growth‑focused funds.
- Revenue still climbs 16.4% YoY, but power‑segment growth stalls at ~13% despite a Rs1.7 trn order backlog.
- Industry verticals (transmission, oil & gas, defense) surge 27.4% YoY, hinting at a diversification play.
- Current valuation: 28.2x FY27E P/E versus 22x target – a 10% upside if the turnaround sticks.
- Key risk: Execution intensity in power projects remains below expectations.
You ignored BHEL’s fine print last quarter – that mistake could cost you now.
Why BHEL's EPS Downgrade Signals a Turning Point for Power Majors
Prabhudas Lilladher trimmed BHEL’s FY26 and FY27 earnings‑per‑share (EPS) estimates by 18.9% and 4.3% respectively. EPS, the profit allocated to each share, is a primary barometer of shareholder value. A downgrade of this magnitude usually reflects either a slowdown in revenue growth, rising costs, or a combination of both. In BHEL’s case, the firm still posted a robust 16.4% YoY revenue rise, but the power segment – its historical cash‑cow – grew only 13% while order inflows fell sharply. The mismatch between a healthy backlog and lagging execution is the core driver of the EPS cut.
How Slower Power Execution Impacts BHEL's Revenue Growth
The power segment’s revenue growth decelerated despite a Rs1.7 trn order backlog, the third‑largest in the Indian utilities space. The backlog is a forward‑looking metric that quantifies contracted work yet to be delivered. In theory, a sizable backlog should translate into future revenue, but execution intensity – the speed at which projects move from contract to cash – has been lackluster. Factors include delayed clearances, funding squeezes at state utilities, and competition from private EPC (Engineering‑Procurement‑Construction) players. The net effect: a modest 13% YoY increase that fell short of market expectations and forced analysts to temper EPS forecasts.
Industry Segment Surge: What It Means for BHEL's Diversification Play
While power lagged, BHEL’s industrial division surged 27.4% YoY, driven by transmission, transportation, oil & gas, and defense contracts. Order inflows in this segment, however, dropped to Rs16.3 bn from a high‑base Rs57 bn a year earlier, suggesting the recent growth may be a short‑term bounce rather than a sustainable trend. Still, the diversification reduces reliance on thermal power, aligning with India’s broader capex shift toward renewable integration, grid expansion, and strategic defense spending. Investors should monitor whether BHEL can convert these wins into recurring, high‑margin revenue.
BHEL vs Competitors: Tata Power, Adani Power, and the Race for EPC Contracts
Private players like Tata Power and Adani Power have accelerated their EPC capabilities, often out‑bidding traditional OEMs on speed and price. Tata’s recent 1,200 MW solar‑plus‑storage contract and Adani’s aggressive LNG‑terminal rollout illustrate a pivot toward faster‑return projects. BHEL’s recent Rs66.5 bn win for an 800 MW thermal EPC package from NTPC is significant, yet it underscores that BHEL remains anchored in large‑scale, capital‑intensive thermal projects. The competitive landscape suggests BHEL must either sharpen its execution efficiency or double‑down on non‑thermal sectors where margins are improving.
Historical EPS Corrections at BHEL: Lessons for the Next Cycle
Historically, BHEL has experienced three major EPS revisions in the past decade: 2013 (post‑nuclear project delays), 2017 (commodity price shock), and 2021 (COVID‑induced supply chain strain). In each case, the company leveraged its order backlog to rebound within 12‑18 months, provided execution improved. The pattern suggests that a temporary EPS dip does not preclude a medium‑term upside, but only if management resolves bottlenecks and capitalizes on the industrial pipeline.
Valuation Metrics: Decoding BHEL's Current P/E Landscape
At a trailing P/E of 28.2× for FY27E earnings, BHEL trades well above the sector average of ~22×. The analyst’s target of a 22× FY27E multiple implies a price objective of Rs245, modestly lower than the prior Rs250. The discount reflects the EPS downgrade and execution risk, yet still leaves room for upside if the company delivers on its industrial contracts and accelerates power project completions. For reference, a P/E ratio is calculated by dividing the current share price by earnings per share; a higher multiple can indicate growth expectations or overvaluation.
Investor Playbook: Bull and Bear Cases
Bull Case: If BHEL narrows the execution gap, leverages its order backlog, and expands industrial margins, earnings could rebound, justifying a 22× multiple and pushing the stock toward Rs260. Key catalysts include timely completion of the NTPC 800 MW EPC, new defense contracts, and a policy‑driven surge in transmission infrastructure.
Bear Case: Persistent delays, further order‑inflow contraction, or a shift in government spending away from thermal projects could depress margins and keep EPS under pressure. In this scenario, the stock may trade below Rs210, reflecting a 30×+ P/E on weakened earnings.
Investors should weigh the execution risk against the sizable backlog and diversification trend before adjusting positions.