Prabhudas Lilladher has issued a HOLD rating on public sector major Bharat Heavy Electricals Limited (BHEL) following its Q2FY26 results. The firm suggests a target price of Rs 250 for BHEL, indicating moderate upside from current market levels. BHEL’s Q2FY26 showcased healthy operational execution across both Power and Industry segments, driving revenue and margin expansion. Order inflows dipped, and balance sheet metrics remain a focal point, but the company’s robust backlog and strategic diversification bode well for future growth. Investors are advised to remain vigilant regarding execution pace and the evolving contract asset position, with the target set at Rs 250 as per PL India’s most recent analysis.

Financial Performance Overview

Marked Revenue Growth on Execution Strength: BHEL posted an impressive 14.1% year-on-year revenue increase for Q2FY26, climbing to Rs75.1bn. This expansion was underpinned by concerted efforts in both Power (up 12.9%) and Industry (up 18%) segments.
EBITDA and Margin Expansion:
Operating profits surged with EBITDA at Rs5.8bn (up 111.2% YoY), translating to a margin of 7.7%—a notable improvement of 356bps. This was propelled by a dramatic reduction in other expenses and a tighter control on employee costs.

Contract Assets and Cash Flow Concerns:
Despite the healthy topline, contract assets rose 2% YoY to Rs290bn, raising flags for near-term monitoring. Cash flow from operations stood negative at Rs11.9bn for H1FY26 versus a negative Rs9.7bn in H1FY25.

Order Book, New Wins, and Outlook

Order Intake and Backlog Strength: Order inflows for the quarter declined by 30.6% YoY to Rs219bn, largely due to a high base effect. Nevertheless, BHEL’s order book remains formidable at Rs2.2trn — equivalent to 7.5x its trailing twelve months revenue — anchoring the company’s future earnings visibility.
Strategic Wins Across Verticals:
Key orders in Q2 included EPC and BTG packages for critical thermal projects, supply of Kavach railway equipment, and large-scale transformers for marquee power plants, fortifying BHEL’s positioning in the domestic thermal and industrial landscape.

Industry Segment Momentum:
The Industry segment defied industry winds, with order inflows doubling YoY to Rs36bn. Robust traction was evident across transmission, transportation, oil & gas, and defense.

Long-Term Vision and Key Challenges

Structural Diversification Initiatives: BHEL is keenly invested in areas including railways, defense, green hydrogen, and coal gasification, besides nurturing revenue from spares and services, ensuring multi-pronged growth avenues.
Execution and Balance Sheet Vigilance:
While execution metrics have begun to recover, they remain uneven relative to order wins, keeping investors watchful on the health and fluidity of the balance sheet.

Valuation and Shareholder Metrics

Market Multiples and Shareholding: - *Current Price:* Rs246 - *Target Price:* Rs250 - *Price/Earnings (FY27E):* 25.2x - *Price/Earnings (FY28E):* 19.0x - *Market Cap:* Rs858bn - *Promoter Holding:* 63.17%

Key Financials Snapshot

Stock Levels and Investor Targets

Key Trading Levels: - Support Level: Rs215-220 (previous Hold targets) - Target Price: Rs250 for medium-term investors as per latest Prabhudas Lilladher report. - Upside is capped due to this Hold rating; however, fundamental recovery and sectoral tailwinds may warrant a re-rating upon improvement in core execution.

Risks and Monitoring Metrics

Balance Sheet Evolution: Watch for changes in contract asset levels and improvement in cash flow generation, which remain critical for sustained upward momentum.
Execution Pace and Order Inflows:
Continued momentum in converting order pipeline to revenue will be pivotal in determining the next phase of BHEL’s growth trajectory.