BHEL Share Price: Record Order Book, But ROE Remains Near 3% – Original
India’s power and capital goods sectors are seeing renewed activity as electricity demand rises and companies step up investments in generation and infrastructure. This has improved the outlook for engineering and equipment manufacturers with large project pipelines.
BHEL has emerged as one of the key beneficiaries, with its order book, revenue and operating performance improving in recent years. However, despite this recovery, the company’s return ratios remain relatively modest, making execution and capital efficiency important factors to watch.
With a market capitalisation of Rs. 1,46,803 cr, the shares of Bharat Heavy Electricals Ltd closed at Rs. 421.60 per share, down from its previous close of Rs. 426.25 per share.
Margin recovery changes the BHEL story
Bharat Heavy Electricals Ltd. (BHEL) has moved into a very different operating phase compared with the period when weak execution and legacy contracts weighed heavily on profitability. The company’s operating margin has recovered sharply, with the latest trailing twelve-month operating margin at around 9.4%. This is a significant improvement from the 4.9% recorded in FY25 and 3% in FY24.
The improvement becomes more visible when viewed over a longer period. BHEL reported an operating margin of around 7% in FY15, before margins fell to negative 5% in FY16, 6% in FY18 and 7% in FY19.
The deterioration became particularly severe during FY20 and FY21, when operating margins turned negative at around 0.6% and 18%, respectively. Margins then recovered to 3.9% in FY22, 4.5% in FY23, 3% in FY24, 4.9% in FY25 and around 8% in FY26. The latest TTM figure of about 9% therefore represents a substantial recovery from the lows of the previous decade.
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This means the central concern around BHEL is no longer simply whether the company can improve margins. The bigger question is whether this improvement can translate into significantly better returns on the large capital employed in the business.
Revenue growth is now accelerating
BHEL’s revenue growth has also strengthened alongside the margin recovery. Consolidated sales increased from around Rs. 23,893 crore in FY24 to Rs. 28,339 crore in FY25 and Rs. 33,782 crore in FY26. On a TTM basis, sales have reached around Rs. 35,993 crore, representing approximately 27% growth over the comparable period.
Profitability has improved even faster. Consolidated PAT increased from around Rs. 534 crore in FY25 to Rs. 1,600 crore in FY26, while TTM PAT has reached approximately Rs. 2,432 crore. This sharp improvement in earnings has also resulted in a major expansion in EPS, from Rs. 1.53 in FY25 to Rs. 4.60 in FY26 and around Rs. 6.99 on a TTM basis.
The Q1 FY27 numbers provide further evidence of the improvement in execution. Revenue from operations increased 40.3% year-on-year to around Rs. 7,698 crore, while PAT came in at around Rs. 377 crore compared with a loss of Rs. 456 crore in Q1 FY26. EBITDA also turned positive at around Rs. 504 crore from a loss of Rs. 537 crore in the year-ago quarter.
Record order book provides visibility
The company ended FY25 with outstanding orders of around Rs. 1.96 lakh crore, compared with Rs. 1.3 lakh crore in FY24 and Rs. 91,336 crore in FY23. FY25 also saw record order inflows of around Rs. 92,535 crore compared to Rs. 77,907 crore in FY24.
In FY26, BHEL received total orders of around Rs. 75,000 crore and ended the year with an outstanding order book of approximately Rs. 2.4 lakh crore. The momentum continued into FY27. BHEL received order inflows of around Rs. 26,745 crore in Q1 FY27, taking the order book to roughly Rs. 2.60 lakh crore, according to ICICI Direct. The order book is spread beyond thermal power, with businesses such as transmission, nuclear, defence and other industrial activities also contributing to the backlog.
This gives BHEL considerable revenue visibility. However, the size of the order book by itself does not guarantee high returns because these are large, long-duration projects that can take several years to execute.
FY22-FY26 order inflows show the scale of the turnaround
BHEL’s order inflows have changed materially over the last few years. Order receipts were around Rs. 20,379 crore in FY22 and increased to Rs. 23,548 crore in FY23. They then rose to around Rs. 77,907 crore in FY24 before reaching a record Rs. 92,535 crore in FY25. FY26 inflows remained strong at around Rs. 75,000 crore.
The important point is that the company has now built a backlog that is several times its annual revenue. This creates an opportunity for revenue growth if BHEL can execute projects faster and convert its order book into cash and profits.
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At the same time, rating agencies have highlighted execution time and working capital as important risks. Power projects can have a gestation period of four to five years or longer, meaning a large order book does not immediately translate into revenue.
ROE remains the key weakness
Despite the sharp improvement in revenue and margins, BHEL’s return ratios remain relatively low. The company’s three-year average ROE is around 3.18%, while FY26 ROE improved to roughly 6%. ROCE has also improved, but remains in the mid-single digits on several conventional ratio calculations.
The improvement is nevertheless meaningful. Depending on the methodology used, FY26 ROE is reported at roughly 5.8%, compared with around 2% in FY25 and close to 1% in FY24. ROCE similarly improved from roughly 1-2% in FY24-FY25 to around 8.2% in FY26.
This creates an important distinction for investors. BHEL has already demonstrated that it can improve operating profitability, but the improvement in returns has so far lagged the increase in the company’s earnings and valuation.
Legacy contracts and provisions were a major part of the earlier problem
BHEL’s weak profitability over the previous decade was partly linked to older, lower-margin contracts and provisions associated with those projects. The company has been gradually working through these legacy projects, while newer contracts generally have better pricing structures, price-escalation clauses and milestone-linked billing.
The impact of provisions is important when assessing historical earnings. During FY23, BHEL disclosed that it created provisions of around Rs. 1,371 crore while withdrawing or writing back around Rs. 2,366 crore. In FY22, the corresponding figures were around Rs. 1,249 crore of provisions created and Rs. 3,125 crore withdrawn.
These movements show why simply comparing reported PAT across individual years can sometimes obscure the underlying improvement in operating performance. As legacy contracts are completed and old provisions are released, reported profitability can benefit. However, the more important test is whether future earnings increasingly come from normal project execution rather than provision reversals or legacy-contract adjustments.
Newer orders could improve the return profile
The quality of BHEL’s order book has also been improving. CRISIL noted that newer orders have better pricing terms, price-variation clauses and milestone-based billing structures. The rating agency expects the completion of low-margin legacy orders, operating leverage and better-priced contracts to support further margin improvement.
This could be important for ROE and ROCE. Higher margins increase operating profits, while better milestone-linked billing can improve working-capital efficiency. If revenue rises without a proportionate increase in capital and working-capital requirements, the return generated on the existing asset base can improve.
However, BHEL remains a working-capital-intensive business. Ind-Ra noted that legacy orders have historically involved back-ended payment terms, while contract assets remained elevated. The company’s ability to reduce these balances as newer orders are executed will therefore remain an important monitorable.
Valuation puts the focus on execution
The stock’s sharp earnings recovery has been accompanied by an equally significant rerating. BHEL is currently trading at around 62x trailing earnings, according to recent market data, while its stock price has risen sharply over the past year.
At this valuation, the debate is less about whether BHEL has improved. The financial numbers already show that it has. The more important question is whether the current order book can be executed at substantially better margins and whether those profits can translate into higher ROE and ROCE.
The company now has a combination of strong order visibility, faster revenue growth and significantly improved operating margins. The missing piece is the conversion of this operating improvement into sustainably higher returns on equity and capital. If execution improves faster, the large order book can support further earnings growth.
But if returns remain close to historical levels despite the stronger earnings base, the gap between the business improvement and the valuation could remain an important factor for investors to track.