Prabhudas Lilladher has maintained an "Accumulate" rating on Bharat Heavy Electricals Limited (BHEL) with a target price of Rs 226, revised downward from Rs 260. The report highlights healthy execution growth and significant order wins despite rising expenses impacting margins. BHEL’s strong pipeline, driven by orders from both power and industrial segments, is expected to support long-term growth. However, operational efficiency and execution pace will remain key performance indicators in the near term.

Q3FY25 Performance: Strong Revenue Growth with Margin Pressures

BHEL reported a 32.2% year-on-year (YoY) increase in standalone revenue, amounting to Rs 72.8 billion, driven by robust execution in both power and industry segments. However, margins were impacted by increased other expenses.

Key Highlights:

Power segment revenue: Increased 31.9% YoY to Rs 55.6 billion.
Industry segment revenue: Grew 33.4% YoY to Rs 16.9 billion.
Gross margins improved by 1,021 basis points to 37%, but higher other expenses of Rs 9.1 billion limited EBITDA growth.
EBITDA margin: Expanded by 25 basis points YoY to 4.2%, falling short of the expected 6% margin.
PAT: BHEL reported a profit of Rs 1.2 billion, up 169.4% YoY, aided by improved operations and other income.
While the numbers demonstrate execution strength, cost management remains an area of concern, particularly given higher other expenditures.

Order Book and Recent Wins

BHEL's order book stands at approximately Rs 1.6 trillion, representing 5.9 times its trailing twelve-month revenue. The company recorded Rs 68.6 billion in new orders for Q3FY25, significantly up from Rs 25.7 billion in the same quarter last year.

Order Composition:

Power segment: Contributed 16.6% to total order inflows, with key wins including a 3x800 MW supercritical thermal plant for Telangana Stage-II.
Industry segment: Contributed 83.1%, driven by orders for HVDC (High Voltage Direct Current) transmission systems and AC transmission terminals.
Exports: Accounted for 0.3% of total orders.
The pipeline of thermal power projects and BHEL's diversification into railways, defense, and green technologies signal long-term opportunities. However, competition from Larsen & Toubro (L&T) in the thermal segment could affect future order inflows.

Segment Analysis: Power and Industry

BHEL’s two primary business segments—power and industry—continue to show robust growth and profitability improvements.

Power Segment Performance:

EBIT margin: Improved from 9.4% in Q3FY24 to 11.2% in Q3FY25.
Driven by large-scale thermal projects and infrastructure expansion.
Industry Segment Performance:**

EBIT margin: Rose from 1.6% to 6.2% YoY, supported by major HVDC and transmission projects.
Growing contributions from high-margin non-thermal sectors, including green hydrogen and coal gasification.
These trends highlight BHEL’s efforts to reduce dependency on traditional power generation by expanding into sustainable technologies.

Financial Projections and Valuation

Prabhudas Lilladher has revised its earnings estimates for BHEL, lowering EPS projections due to higher provisions and execution risks. However, long-term growth remains intact, supported by a strong order backlog.

Valuation:

The stock trades at a P/E ratio of 24.5x FY26E earnings, with a target valuation of 22x Sep’26 earnings.
Return on Equity (RoE) is projected to rise from 2.9% in FY25E to 14.2% in FY27E, driven by improved margins and order execution.

Technical Analysis: Key Price Levels

On the daily candlestick chart, BHEL shows signs of consolidation near Rs 200, with strong support and resistance levels shaping near-term price action.

Support Levels:

Rs 184
Rs 195
Resistance Levels:

Rs 210
Rs 226
Technical Insight:
A breakout above Rs 210 could drive the stock towards the target price of Rs 226, while failure to sustain above Rs 195 may signal further consolidation.

Conclusion

BHEL’s Q3FY25 results highlight impressive revenue growth driven by strong execution across its power and industry segments. While rising costs have impacted margins, the company’s extensive order book and focus on diversification into high-growth areas like green hydrogen and HVDC systems position it for sustained success. With a target price of Rs 226 and improving technical indicators, BHEL remains a viable accumulation opportunity for investors seeking long-term gains.