BHEL Stock Outlook: Nuvama Calls FY26 a ‘Clean-Up Year’, Sees Margin Recovery and Ups Target Price

BHEL’s Strong Q2FY26 Performance

Bharat Heavy Electricals Ltd (BHEL) has registered a hard turnaround this September quarter (Q2FY26), earning a PAT of around ₹375 crore compared to ₹106 crore during the same quarter of the previous year and a loss in Q1FY26.

Operating performance also considerably improved: EBITDA rose 2.1 times on a year-on-year basis, exceeding consensus estimates by 31%, supported by skinny margins of 7.7%. These margins were cushioned by lower operating provisions of ₹10 crore in H1FY26 compared to ₹170 crore a year ago, and forex gains of ₹270 crore compared with ₹86.7 crore in Q2FY25.

Revenue grew 14% on a YoY basis but was slightly lower than analyst estimates. Gross margin declined to 30.6% versus 32.7%, while PAT margin in contrast increased to 4.9% from 1.5% a year ago.

Nuvama’s View: FY26 a “Clean-Up Year”

In its latest report, Nuvama Institutional Equities reiterated its ‘Buy’ rating on BHEL, describing FY26 as a “clean-up year” as the company nears completion of legacy low-margin projects. The brokerage expects a strong rebound in margins starting FY27, driven by the execution of higher-margin orders and the benefits of operating leverage.

While maintaining a positive long-term outlook, Nuvama trimmed its FY26E and FY28E EPS estimates by 22% and 16%, respectively, reflecting a lower FY26 operating margin forecast of 6.9% (earlier 8.4%) and potential cost pressures from the Eighth Pay Commission in FY28.

The brokerage has raised its target price to ₹353 (from ₹335), applying a 25x FY28E earnings multiple.

Segment-Wise Performance

Power Segment: Revenue grew 12.9% YoY, with EBIT margin improving to 10.5% (from 6.7% in Q1FY25).

Industrial Segment: Revenue rose 18% YoY, with EBIT margin expanding to 15.3% (from 13.9%).

BHEL also commissioned 1,630 MW during the quarter, including key projects like Yadadri TPS, Khurja STPP, and Punatsangchhu-II HEP.

Order inflows stood at ₹22,000 crore, down 30% YoY on a high base, taking the order book to ₹2.2 lakh crore, equivalent to 7.8x FY25 revenue. Most of the remaining low-margin projects are expected to conclude by FY26, paving the way for improved execution and cash flow recovery from FY27 onwards.

Growth Outlook & Key Triggers

Nuvama expects EBITDA margins to recover to around 14% by FY27–FY28 (from 4.4% in FY25), backed by operating leverage from the ₹2.2 lakh crore order book — 80% of which is power-related — and an additional 25–30 GW of projects in the pipeline over the next 18–36 months.

Key triggers to watch:

• Timely execution of existing orders
• Growth in non-thermal segments (railways, defence, hydrogen)
• Closure of legacy, low-margin projects
• Margin expansion and cash flow improvement in FY27 and