BHEL (BHEL IN) – Q2FY27 Result Update – Strong Q2; execution pick up across segments – REDUCE

We revise our FY27E EPS estimate by +4.1%, factoring in improved execution and margin expansion. BHEL reported a strong Q2FY27 performance, with revenue growth of 23.8% YoY and EBITDA margin improving to 11%, supported by higher gross margins. The Power segment remained the key growth driver, registering 17% YoY revenue growth, underpinned by execution of its robust order book of ~INR2.1trn. Order wins across hydroelectric projects, including Heo and Tato-I, along with an FR6B gas turbine order, further strengthen its presence across hydro and gas-based power generation. BHEL achieved 2,260MW of capacity addition in H1FY27, against its full-year target of 4,790MW, indicating improving execution momentum. The Industrial segment also delivered strong growth, with revenue rising 45% YoY, while a non-thermal order book of ~INR695bn provides meaningful diversification beyond conventional thermal power. Expansion into synchronous condensers, green hydrogen electrolysers, HVDC, Green Energy Corridors, defence and rail mobility further broadens its addressable market. Order inflows stood at ~Rs40bn in Q2FY27, taking H1FY27 inflows to ~Rs300bn, while the sizeable order book (INR2.6trn) and sustained investments across power generation, transmission and infrastructure provide multi-year revenue visibility. Overall, improving execution, margin recovery and diversification beyond thermal power strengthen BHEL’s medium-term growth outlook, although timely order conversion and sustained execution momentum remain key monitorables. The stock is currently trading at P/E of 31.6x/24.0x on FY28E/FY29E. We roll forward to Sep’28E and maintain our ‘Reduce’ rating on the stock given recent rally in the stock price, with a TP of Rs426 (Rs368 earlier) valuing the stock at a PE of 25x Sep’28E (25x Mar’28E earlier) factoring in stronger execution.