The brokerage has a target price of Rs 355, suggesting meaningful upside from the OFS floor price.
At the heart of the bullish thesis is India’s aggressive coal capacity roadmap. The country is targeting 340 GW of coal-fired capacity by 2047. Even after accounting for projects under construction and the retirement of ageing plants, JM Financial estimates India will require 170–180 GW of new thermal projects to maintain its installed base.
After nearly five to six years of limited ordering, a new thermal capex cycle began in September 2022. Of the 97 GW targeted for addition by FY34, 45 GW has already been ordered and another 32 GW is under tendering.
BHEL currently has an order book of Rs 2.23 lakh crore, including 35 GW of projects under execution. This provides strong revenue visibility over the next few years.
Execution mix to drive margin inflection
The key differentiator in this cycle is margin recovery, according to JM Financial. BHEL’s older, pre-Talcher projects were largely low-margin. As these near completion and execution shifts to newer, higher-margin post-Talcher orders, operating leverage is expected to kick in. The brokerage expects EBITDA margins to expand sharply to 10.7% by FY28 from 4.4% in FY25.
It also estimates revenue, EBITDA and PAT to grow at a CAGR of 20%, 62% and 98%, respectively, over FY25–FY28. EPS is projected to rise from Rs 1.5 in FY25 to Rs 11.8 by FY28, a near eightfold increase in three years.
Importantly, BHEL has signed an MoU with the Ministry of Heavy Industries targeting Rs 337 billion in value of production and a 9.91% EBITDA margin for FY26. Achieving these targets would further reinforce confidence in the turnaround story.
Beyond thermal: Optionality in nuclear and coal gasification
While thermal remains the primary earnings lever, BHEL’s optionality in emerging segments strengthens the long-term investment case. India aims to increase nuclear capacity to 100 GW by 2047 from 8.8 GW currently. BHEL is the sole domestic manufacturer of nuclear turbine generator sets and has supplied equipment for over half of India’s installed nuclear capacity. Any acceleration in nuclear ordering could significantly boost its non-thermal revenue mix.
The company has also secured orders in coal gasification, including a Rs 2800 crore syngas purification plant order, in addition to a Rs 5400 crore EPC contract in the same project.
These emerging verticals, along with transmission (765 kV and HVDC), transportation and defence, add diversification to earnings.
China import risk overstated
Concerns around possible easing of restrictions on Chinese suppliers have surfaced. However, JM Financial believes removal of component-level restrictions may actually benefit PSUs like BHEL by lowering input costs, while import of complete equipment is unlikely to materially disrupt domestic players
Risks to watch
The biggest structural risk remains a faster-than-expected shift to renewables plus storage as baseload power, which could alter coal capacity assumptions. Additionally, any delay in policy execution or tendering could affect order inflows.
There is also execution risk, given the long hiatus in thermal ordering had weakened parts of the domestic supply chain ecosystem. However, channel checks suggest revival is underway.
Valuation comfort at OFS price
At the OFS floor price of Rs 254, the stock is available at roughly 21x FY28 earnings. JM Financial values the stock at 30x FY28 earnings to arrive at its Rs 355 target price
Given the projected sharp improvement in margins, multi-year earnings visibility from a Rs 2.23 lakh crore order book, and optionality in nuclear and coal gasification, the OFS appears attractively priced for investors with a medium-term horizon, the broker said.