Strong order book points to improved outlook for Bhel on rising demand

Robust order pipeline and improving execution position BHEL for strong revenue growth, though rising input costs and geopolitical risks may weigh on margins

The capital goods sector appears positioned for steady growth with big order books, good balance sheets, and favourable policy. Many project-based companies could post healthy double-digit revenue growth, while product-based companies could also see low-teens growth.

 

Operating margins could compress somewhat and net profit could be flat, due to higher costs of critical raw materials due to the Iran war. Apart from sectors like defence and T&D, renewables and thermal power could be growth areas. Power companies could report revenue and operating profit growth in the mid-single digits or low teens. The order intake was encouraging across power, metro, railways, T&D, data centres, and automation.

 

BHEL could be among the best performers. The PSU reported a turnover of around Rs 32,350 crore (provisional and unaudited) for FY26 in its update. This is about 18 per cent growth over FY25. Total order inflows were around Rs 75,000 crore for FY26, about 19 per cent lower than FY25. In Q4FY26, BHEL received one major order of Rs 13,500 crore for the main plant package of 3×800 megawatt (MW) Telangana Stage-II STPP from NTPC. The outstanding order book was Rs 2.4 trillion.

 

Another 10-plus gigawatt (GW) worth of orders are expected in FY27 and FY28. BHEL may see orders of over Rs 80,000 crore over the next two years, across non-power and power segments. Many of the FY26 orders and the new orders will be higher margin, which implies better profitability. 

 

On the execution front, BHEL commissioned and synchronised 8.9 GW of thermal capacity in FY26. The order book and project pipeline should result in a 33 per cent revenue annual growth rate over FY26-28. Order wins in the power and industrial sectors were Rs 59,000 crore (down 27.5 per cent year-on-year) and Rs 16,000 crore (up 45 per cent year-on-year), respectively.

 

The Q4FY26 order intake was at Rs 29,100 crore, up 17 per cent quarter-on-quarter but 67 per cent lower year-on-year. A high base contributed to the year-on-year decline because BHEL had large orders from the Adani Group in Q4FY25. On a longer timeline, FY26 order inflow is 218 per cent above FY23 levels, indicating stable growth in thermal ordering.

 

The order book of Rs 2.4 trillion, up 22 per cent year-on-year, is over 7.2 times its trailing twelve-month revenues. BHEL is well placed to win future orders given that some competitors have exited the sector. Power demand is on the rise and the order pipeline for power projects is strong. The big order book ensures revenue visibility while BHEL could see a big earnings boost if it improves execution.

 

Companies with projects running in West Asia such as L&T, KEC, and Kalpataru have been affected by geopolitics. Export-oriented businesses may see delays in dispatches and order finalisation as well. Corporates without these exposures will see limited impact from the Iran war. In Q4FY26, power consumption of 425 billion units (BU) was up 2.0 per cent year-on-year, with peak demand also growing 2 per cent year-on-year to 245 GW. Power prices remained low.

 

Prices of key commodities have risen in Q4FY26 due to the conflict. Apart from energy prices, industrial non-ferrous metals such as zinc, copper, and aluminium have risen substantially. This rise in raw material costs may impact operating expenses. Momentum in the capital goods sector may also be affected negatively if the conflict is not resolved soon since private capex plans could be deferred. However, government capex (Centre and states) grew by mid-teens year-on-year in 11MFY26 and that support should continue.

 

If BHEL can improve execution, it may have a big upside in terms of potential revenue growth, given the large outstanding order book. The operating profit margin can also expand due to operating leverage and ramp-up of execution, with net profit going up on improved working capital management. BHEL has low return on capital employed (ROCE) (in the range of 5-6 per cent) and it had adjusted net profit of just Rs 631 crore on revenues of Rs 28,339 crore in FY25. It could double net profit in FY26, and double again in FY27 and FY28, while ROCE could climb to a peak in the 14-15 per cent range.