BHEL stock punished for potential China threat: Is the Street’s fear overdone?
BHEL shares slid 15% after reports flagged possible Chinese competition in power equipment. Analysts say policy risks are overstated, with execution, margins and a ₹2.2 trillion order book in focus.
Shares of public sector major Bharat Heavy Electricals Ltd (BHEL) have slid nearly 15% over the past three trading sessions, spooking investors after reports suggested a potential policy shift that could reopen India’s power equipment market to Chinese manufacturers.
The sell-off began on 8 January, when the stock plunged 14% intraday, following media reports that a government committee had recommended allowing Chinese power equipment makers to bid for government contracts. The concern: renewed competition could dent BHEL’s position in the boiler-turbine-generator (BTG) segment.
However, several analysts argue the market reaction may be overdone.
Policy overhang
Brokerages feel the recommendation is unlikely to go through in the current volatile geopolitical environment. Even if the restriction was to be removed, it may have limited impact as the demand for Chinese equipment has waned lately due to quality issues, high downtime, and maintenance costs.
“Our interactions with industry experts reveal that any relaxation would likely be aimed at easing supply-chain constraints and improving project execution, rather than increasing OEM competition," said Systematix Shares and Stocks (India) in a report dated 12 January.
While BHEL overlaps most closely with Chinese original equipment manufacturers (OEMs) in terms of product offerings, its order book provides visibility of over seven years, shifting investor focus toward execution and margin delivery, the brokerage added.
Order book strength
Last week, the company won a ₹5,400-crore (excluding GST) contract for a coal gasification project in Odisha. The company’s order book stands at ₹2.2 trillion, according to the Q2FY26 earnings presentation.
In FY25, order inflows rose sharply to ₹92,000 crore from ₹78,000 crore in FY24 versus ₹20,000 crore annually during FY21-23. For FY26, ICICI Securities estimates order inflow at close to FY25 level.
BHEL has emerged as a key beneficiary of the government’s renewed push for thermal power capacity addition, after excessive reliance on solar energy contributed to power shortages.
The swelling order book has reversed BHEL’s muted financial performance where it faced high-cost of operations, leading to average Ebitda margin of mere 3.4% in FY23-25. This is expected to reach 7% in FY26 and over 9% by FY27, aided by a pick-up in execution.
“We believe the execution ramp-up was delayed due to teething issues for new built ups. The issues are ironing out and we expect a sharp execution ramp up in FY27," added the ICICI Securities report.
In the September quarter (Q2FY26), the margin stood at 7.7%. According to Bloomberg consensus estimates, BHEL’s earnings per share are expected to rise sharply to ₹9.3 in FY27, a six-fold jump from ₹1.5 in FY25. BHEL is trading at FY27 price-to-earnings of about 28x, showed Bloomberg data. Analysts caution that such valuation multiples and elevated earnings expectations will need to be supported by timely execution and margin delivery going forward.
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