Whalesbook
BHEL stock has climbed to an 18-year high, fueled by investor confidence in its substantial ₹2.4 trillion order backlog and strong government support for infrastructure development. This surge highlights specific factors boosting BHEL.
Fueling the Surge
The company's stock recently reached a new life-time high of ₹398.95, marking an 18-year peak. This ascent is supported by strong operational performance in FY26, with revenue growing 18% year-on-year to approximately ₹32,350 crore. BHEL secured about ₹75,000 crore in new orders during the fiscal year, expanding its order book to ₹2.4 trillion, which is over 7.2 times its trailing twelve-month revenues. Key wins include a ₹13,500 crore EPC package from NTPC for the Telangana Stage-II STPP. The company also commissioned 8.9 GW of power capacity in FY26, showcasing its execution strength. This positive momentum has led some analysts to remain bullish. JM Financial and ICICI Securities have issued 'BUY' ratings with price targets around ₹358-₹370, while Morgan Stanley holds an 'Overweight' rating and raised its price target to ₹444.
Valuation Concerns Surface
However, BHEL's current valuation metrics appear high when compared to its industry peers. Its trailing twelve-month P/E ratio stands at approximately 87.72, 89.33, and 111.6. This represents a significant premium compared to Larsen & Toubro (L&T) at around 31.70-34.5, Siemens India at approximately 65.3-85.88, and KEC International at 20.0-24.2. While BHEL’s profit saw a substantial 199.7% rise over the past year, its Return on Equity (ROE) remains modest at 6.1%. Contextually, the wider Indian infrastructure sector is growing significantly, expected to reach $302.62 billion by 2031, with an annual growth rate of 8%. Government capital expenditure is a key driver, with Indian Railways receiving a record ₹2.77 lakh crore for FY27 and total public capital expenditure for FY27 estimated at ₹12.2 lakh crore. The defense sector is also expanding rapidly, with production reaching ₹1.54 trillion in FY25.
Risks and Doubts Emerge
Despite the strong order book and positive performance, serious valuation concerns are emerging. Prabhudas Lilladher recently downgraded BHEL to 'Reduce', citing stretched valuations. This view contrasts with some other brokerages but highlights a key risk. The company's P/E ratio is considerably higher than its peers, implying that significant future growth is already factored into the stock's price. Furthermore, executing its ₹2.4 trillion order backlog presents challenges, including potential delays and cost overruns. Rising input costs, potentially exacerbated by geopolitical tensions, could squeeze operating margins. This is a risk for companies with operations in West Asia, though BHEL's direct exposure here is less clear. Financially, BHEL's interest coverage ratio stands at a low 2.7x. Its debt-to-equity ratio has increased to 30.4% and is trending upwards, suggesting increased reliance on debt. While government spending provides a tailwind, any shift in government policy or fiscal priorities could hurt BHEL's revenues.