Bharat Heavy Electricals (BHEL) faces continued bearish sentiment from major brokerage firm Investec, which maintains its aggressive downside target despite the company's recent quarterly results. The state-run power equipment manufacturer's stock closed at ₹263 on Monday following its third quarter earnings announcement, but analysts remain divided on its future prospects.

Investec Maintains Aggressive Bearish Stance

Investec, positioned as one of the biggest bears on BHEL, continues to project significant downside potential for the stock. The brokerage firm maintained its sell rating with a price target of ₹70, representing a substantial 73% downside from Monday's closing price.

The firm's bearish outlook stems from concerns about execution timeline challenges and supply chain impairment. According to Investec's analysis, weak ordering during financial year 2016-2023 forced several thermal power component vendors to exit or shut operations, creating significant supply chain disruptions.

Supply Chain and Execution Concerns

Investec highlighted that BHEL itself has closed in-house manufacturing of several components over the past decade, further complicating the execution landscape. The brokerage firm's checks indicate that meeting execution timelines could prove challenging given these supply chain constraints.

Kotak Institutional Equities shares similar concerns, maintaining a sell rating with a ₹120 price target, implying 55% downside potential. Kotak has reduced BHEL's Earnings Per Share estimates for financial year 2028 by 15% to account for slower execution pace, modest gross margin cuts, and marginal increases in employee costs related to pay commission adjustments.

Historical Performance Challenges

The company's historical performance presents additional concerns for analysts. JPMorgan's analysis reveals that BHEL's EBITDA margin averaged just 2.10% over financial year 2014-2025, with the minimum reaching -18.00% in financial year 2021. Despite winning majority orders in coal-based plants post-COVID-19, the long track record of unprofitable execution raises caution about execution pace.

Contrarian Bull Perspective

Contrary to the bearish sentiment, Nuvama maintains a buy rating with a ₹353 price target, indicating 34% upside potential. The brokerage anticipates a turnaround year in financial year 2027, expecting the company to be free of legacy drags and benefit from operating leverage.

Analyst Coverage and Market Performance

Among 19 analysts covering BHEL, opinions remain polarized with eight buy ratings, two hold recommendations, and nine sell ratings. The stock declined as much as 3% following the earnings announcement but recovered to close 1% lower at ₹263. Despite recent volatility, BHEL shares have gained 21% over the past year, reflecting mixed investor sentiment about the company's prospects.

Bharat Heavy Electricals Limited (BHEL) is approaching a critical operational transition, according to a recent report from brokerage firm Nuvama. The analysis highlights significant developments in the company's project portfolio that could reshape its financial trajectory over the next two years.

Legacy Projects Nearing Completion

Nuvama's report indicates that BHEL's older projects, which have been contributing to losses, are expected to reach completion by the second half of FY26. These legacy projects have been a drag on the company's financial performance, particularly affecting gross margins in recent periods.

New Project Operations Timeline

The brokerage firm projects that most of BHEL's new projects will become operational by March 2026. This timeline suggests a potential overlap period where the company will be concluding loss-making ventures while simultaneously ramping up new operational capabilities.

Margin Pressure Continues

The report emphasizes that gross margins are currently under pressure due to these older projects. The completion of these loss-making initiatives by H2 FY26 could potentially alleviate some of the margin compression that BHEL has been experiencing.

Operational Transition Period

BHEL appears to be navigating a significant operational transition, with the company working to complete legacy commitments while preparing new projects for commercial operations. The convergence of these timelines around FY26 represents a crucial period for the heavy electrical equipment manufacturer.

The Nuvama analysis provides insight into BHEL's project execution timeline and the expected resolution of current operational challenges. The completion of loss-making projects and the commencement of new operations by March 2026 mark important milestones in the company's operational roadmap.