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BHEL Ltd – Diversified PSU Engineering Giant

Updated: Jun 9, 2022

Company Name – Bharat Heavy Electricals Limited (BHEL)

Current Share Price – INR 52.6 (April 20, 2022)

Market Cap – INR 18,333 cr


1. What is interesting about the stock?

India is currently experiencing a heatwave with temperatures reaching record highs everywhere. People are flocking to coolers, Air Conditioners for respite from the scorching heat. The power demand during the summer peaks, but how does such a large country like India manage this excessively high power demand? The answer lies with one such homegrown Public Sector Unit (PSU) – BHEL. It is one of the ten ‘Maharatnas’ that caters to India’s Power & Industry sectors. Very few companies in the world are as versatile as BHEL having a global footprint across numerous business units.

BHEL operates across 2 segments:

  • Power (~70% of revenues)

  • Industry (~30% of revenues)

The Power segment comprises thermal, gas, hydro, and nuclear power plant businesses apart from new businesses of emission control equipment and spares for non-BHEL sets. BHEL has been in this business for more than five decades, having commissioned its first coal-based set in 1969. BHEL is one of the few companies in the world manufacturing the entire range of power plant equipment and has the capability from concept to commissioning of thermal power plants, encompassing steam boilers, turbines, generators (BTG), and matching auxiliaries. BHEL can provide retrofit solutions of Electro-Static Precipitators (ESP), Flue Gas Desulphurization (FGD), NOx control equipment, and furnace modification solutions also. BHEL has supplied ESP for the control of particulate matter not only for BHEL boilers but also for boilers of other manufacturers. It has proven expertise in plant performance improvement through renovation, modernization, and updating of a variety of power plant equipment, besides specialized expertise in residual life assessment, health diagnostics, and life extension of plants. 55.4% of the country's total power generation comes from BHEL supplied thermal utility sets (coal & lignite based), a testimony to the superior performance of BHEL sets. Going forward, BHEL is also providing optimum techno-economic solutions to developers to meet such requirements from concept to commissioning for replacing such power plants with supercritical technology, including the dismantling of old & inefficient power plants.

The Industry segment caters to major equipment supplies for several industries including transportation, transmission, defense & aerospace, renewables, downstream oil & gas, energy storage, electric mobility, petrochemicals, etc. With state authorities pursuing mass rapid transit projects in cities having a population of over two million and light rail/ monorail being explored in small cities, the urban transportation segment is also poised to grow. BHEL is focusing on new business opportunities like Metro, Monorail, Metrolite, Maglev, Fuel Cell locomotive, Battery-powered locomotive, and High-Speed Rail (HSR). BHEL with Kawasaki Heavy Industries Limited (KHI), is gearing up for indigenous manufacture of Mumbai- Ahmedabad HSR trains. A sharp increase in the capex related to transmission projects (substations and transmission Lines) has been witnessed in recent years. The power transmission segment is having an estimated planned capex of about INR 3,040 billion between 2020-2025. Robust transmission infrastructure is the need of the hour and BHEL has a strong presence in the Indian Power Transmission space. BHEL is also exploring new business opportunities as a "developer" through strategic tie-ups with SJVNL and GAIL in various proposed solar power parks. Ever-increasing pressure on land in the country has resulted in the exploring usage of water bodies. Reservoirs of thermal/hydropower plants, lakes, irrigation ponds, etc. for the development of floating and canal top power plants are the emerging requirements that BHEL caters to. Company has also been a trusted partner of the Indian Navy and is working on critical areas like indigenous manufacturing of Marine Gas Turbines for propulsion and utility applications, indigenous design & development of Li-ion Battery systems for the Defense & Aerospace sector including for Submarine Applications. BHEL is one of the select few firms in the world having the capability to design and manufacture compact heat exchangers for military aircraft and is currently developing a variety of compact heat exchangers for Indian military aircraft and helicopters. To tap the upcoming opportunities in the areas of energy storage and e-mobility by building capabilities through in-house developments and strategic tie-ups, multiple opportunities in electric mobility and battery energy storage systems (BESS) are being addressed. Railway track electrification and oxygen medical plants are also being focused upon as new business areas.

BHEL’s current order book is more than INR 1 lakh crore or more than 5 years of FY21 revenue.

Key Strengths

  • Excellent project execution capabilities, skilled manpower & engineers, and vast asset base in the form of 16 technology-intensive manufacturing establishments across different locations in India.

  • Govt of India has put thrust behind the schemes like Make in India, AatmaNirbhar Bharat, PLI scheme, etc. to make the country self-reliant in core sectors. Significant opportunities will pan out due to the modernization plan of Indian Railways, indigenization of Indian defense procurements, E-mobility, and Renewables space.

Key Weaknesses

  • BHEL has a history of poor receivables management; it is actively reducing trade receivables on a YOY basis but with the huge order book catering to a variety of business units it remains challenging.

  • Due to the long gestation periods of their engineering projects, rapidly rising costs and meeting market requirements becomes the key hurdles.

2. Key Historical Financials

  • Company turned profitable in Q3FY22 after 7 continuously quarterly losses

  • BHEL is making losses as (1) the revenue from the thermal power generation has come down due to ESG and increasing focus on renewable power - but company is still left with high fixed costs and (2) cleaning up of trade receivable book

  • ROE/ROCE is -10% in FY21

3. What is my view on company valuation?

PSUs in India have generally been laggards in terms of stock returns. BHEL is not different and the stock has been on a consistent downtrend since the last recession of 2008. It has given a dismal return of ~12% over the past 1 year. BHEL currently trades at a P/B of 0.7x and has turned profitable in a quarter of December 2021.

ABB & Siemens are its closest competitors which trade at P/BV of 11x and 8x respectively and P/E of 103x & 77x respectively. ABB & Siemens OPM are quite consistent at 9-10% whereas BHEL has made losses in FY20 and FY21. For BHEL, the Cash Conversion Cycle > 100 days whereas ABB has <50 days & Siemens <0 days.

BHEL is quite attractively priced at the current market price, long term investors looking over the next 5 years’ time horizon can evaluate this Maharatna. BHEL is poised to take advantage of government schemes & new policies that should govern the next decade of economic growth & infrastructure development.

4. What are the risks to the investment analysis?

Key risks to investment analysis are:

  • Fundamental shift of electricity generation from fossil fuel-based systems to renewable & green forms like solar, wind, and hydrogen-based systems presents a challenge to the company’s core business of equipment manufacturing of coal & gas-based thermal power plants

  • Nearly half of the order book are fixed prices which could lead to losses with higher commodity prices

  • Timely project execution, inadequate diversification, increase in cost, declining margins, and liquidity are the major areas of concern for BHEL


About the Author

I have over 7 years of work experience in Automobile Industry & Technology Sector in India. Currently I am working as a Research & Development Engineer at a Global Automobile major helping them scale their Electric Vehicles ambitions.

I hold Master’s & Bachelor’s degrees in Engineering from Indian Institute of Technology, Madras (IITM).

I am an insignificant public investor & have avid interest in Trekking, Photography, and Cybersecurity.


I have no stock, option or similar derivative position in any of the companies mentioned since last 30 days, and shall not initiate any such positions within the next 5 days. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from SocInvest). I have no business relationship with any company whose stock is mentioned in this article.

I am not a SEBI registered advisor. This article is purely for educational purpose and not to be construed as an investment advice. Please consult your financial advisor before acting on it.

I have used publicly available information while writing this article.


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