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BHEL's Huge Order Surge Hits Geopolitical Supply Snags

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AuthorIshaan Verma|Published at:
BHEL's Huge Order Surge Hits Geopolitical Supply Snags
Overview

Bharat Heavy Electricals (BHEL) is winning a lot of new orders, boosting its long-term growth outlook, says JM Financial. But the company is facing immediate problems executing these orders because geopolitical issues are disrupting the supply of critical gases like helium. This means BHEL has lowered its FY26 revenue forecast. Margins are expected to stay steady for now, but significant profit growth is anticipated by FY28, thanks to better operations and a solid project pipeline. BHEL's market value is ₹95,000 crore, with a P/E ratio of 45x.

BHEL's Order Surge Faces Supply Chain Hurdles

BHEL is experiencing a robust surge in its order book, which is expected to fuel its long-term growth. Analysts project the company will start FY27 with a minimum of ₹2.5 trillion in secured orders. They also anticipate an additional 24 gigawatts of new projects from FY27 to FY29. Order inflows year-to-date have been substantial, estimated between ₹70,000 crore and ₹75,000 crore. These strong inflows are supported by government initiatives, including a target to add 97 gigawatts of thermal power capacity by FY32, indicating continued demand for new projects.

Easing Import Rules Improve Margins

An important development expected to boost BHEL’s operational efficiency is an exemption from import restrictions on 21 components sourced from China. Previously, these restrictions required procurement from more expensive European suppliers, causing project delays and higher costs. The permission to import critical items like CRGO coils, forgings, and seamless pipes should directly improve cost structures and speed up project execution. BHEL currently trades with a market capitalization of ₹95,000 crore and a P/E multiple of 45x, with its stock at ₹255 per share.

Geopolitical Risks Impact Gas Supplies

Despite positive long-term growth drivers, BHEL faces immediate operational challenges due to geopolitical instability. The ongoing conflict in the Middle East has disrupted supply chains for essential industrial gases like RLNG, LPG, and helium. These gases are crucial for BHEL's manufacturing processes. Tight helium availability, in particular, poses a risk that could delay the production of critical equipment at key facilities, potentially affecting performance in the fourth quarter.

Revenue Forecast Lowered Amid Supply Issues

Because of these supply chain disruptions, JM Financial has lowered its FY26 revenue forecast for BHEL to ₹31,500 crore, expecting a shortfall of ₹2,500-3,000 crore for the fourth quarter. While margins are forecast to remain stable at 6-7% for FY26, the firm warned that a prolonged geopolitical conflict could force downward revisions to FY27 estimates. The company's stock is trading at ₹255, down 15.29% year-to-date. However, the analyst rating suggests a target price of ₹345, implying a potential 35% upside.

Risks and Valuation

While BHEL benefits from government support and a large order book, its operations are vulnerable to external shocks. The company relies on imported components, especially gases for specialized manufacturing, making it susceptible to global conflicts. Competitors like Thermax (P/E 60x) and Siemens India (P/E 55x) also face sector challenges but may have different supply chain strengths. BHEL's P/E of 45x suggests the market may already factor in some risks. A sustained geopolitical escalation could delay projects and increase costs, potentially hindering the planned margin expansion. Historical market reactions to similar supply chain tensions indicate investor sensitivity to such disruptions.

Analyst Views on BHEL's Future

Looking past immediate execution concerns, BHEL is projected for substantial earnings growth. EBITDA margins are expected to more than double from 4.4% in FY25 to over 10% by FY28. Earnings per share are forecast to rise from ₹1.5 to around ₹11.5-12 by FY28. The broader Indian capital goods sector is predicted to grow 12-15% annually, driven by government infrastructure spending. JM Financial maintains a 'Buy' rating with a target price of ₹345. Other analysts generally hold 'Buy' or 'Hold' recommendations, with average target prices between ₹280-300, reflecting cautious optimism alongside execution risks.

Disclaimer:This content is for informational purposes only and does not constitute financial or investment advice. Readers should consult a SEBI-registered advisor before making decisions. Investments are subject to market risks, and past performance does not guarantee future results. The publisher and authors are not liable for any losses. Accuracy and completeness are not guaranteed, and views expressed may not reflect the publication’s editorial stance.