BHEL Shares Plunge Ahead? Bears See 73% Downside Post Q3

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AuthorVihaan Mehta|Published at:
BHEL Shares Plunge Ahead? Bears See 73% Downside Post Q3
Overview

Bharat Heavy Electricals Ltd. (BHEL) shares are under pressure after its third-quarter results missed consensus. Investec and Kotak Institutional Equities maintain "sell" ratings, projecting potential downsides of 74% and 55% respectively, citing supply chain issues and execution challenges. JPMorgan also cautions on long-term profitability. However, Nuvama retains a "buy" rating, anticipating a turnaround in FY2027. The stock closed down 1% after the announcement.

Bharat Heavy Electricals Ltd. (BHEL) shares are facing intense scrutiny following its third-quarter results, with key brokerages projecting significant downside despite recent gains. The company's Q3 performance, reported on Monday, January 19, 2026, failed to meet analyst expectations, leading to a sharp reaction in the stock.

Bearish Outlook Persists

Investec, a prominent bear on BHEL, has maintained its "sell" rating with a price target of ₹70. This implies a substantial 74% downside from the stock's closing price of ₹263 on Monday. The brokerage's bearish stance is rooted in concerns about BHEL's ability to meet execution timelines.

Checks by Investec indicate that a weakened supply chain, exacerbated by numerous thermal power component vendors exiting the market between FY2016 and FY2023, poses a significant hurdle. BHEL itself has scaled back in-house manufacturing of several components over the past decade.

Kotak Institutional Equities echoes this caution, holding a "sell" rating and a price target of ₹120, suggesting a potential 55% fall. Kotak has reduced its FY2028 Earnings Per Share (EPS) estimates for BHEL, factoring in a slower execution pace and modest gross margin cuts. Increased employee costs due to pay commission revisions also contribute to the downward revision.

Execution and Margin Concerns

JPMorgan's note highlights a long track record of unprofitable execution for BHEL, warranting caution on future project delivery. The firm points out that many contracts feature onerous payment terms, pushing profitability towards the back end and requiring substantial working capital. High inventory levels, relative to revenues, also raise questions about the sustainability of the other income booked in Q3. BHEL's EBITDA margin has averaged a meager 2.1% between FY2014 and FY2025, with a low of -18% in FY2021.

Bullish Counterpoint

On the optimistic side, Nuvama is a staunch bull for BHEL. The brokerage maintains its "buy" rating and a price target of ₹353, signaling a potential 34% upside. Nuvama anticipates that after a period of "kitching sinking" in FY2026, BHEL could witness a "turnaround year" in FY2027, shedding legacy burdens and beginning to benefit from operating leverage.

Analyst Consensus

Currently, 19 analysts cover BHEL. Of these, eight recommend a "buy," two suggest a "hold," and nine advise "sell." The stock, which has gained 21% in the past year, closed 1% lower at ₹263 on Monday after initially dropping as much as 3% following the Q3 results announcement.

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