Shares of Bharat Heavy Electricals Ltd surged 4.8% to ₹285.50 on Friday amid renewed debate over India's potential policy shift regarding Chinese firms in government procurement. The development has sparked contrasting views among analysts about the implications for the state-owned power equipment manufacturer.

Analyst Views Diverge on Policy Impact

JM Financial maintains an optimistic outlook, arguing that any rollback of restrictions, particularly at the component level, would benefit BHEL through reduced input costs and shortened project timelines. The brokerage suggests that even broader relaxation would have minimal impact on the company's business due to existing domestic sourcing rules and historical experience with Chinese suppliers.

Jefferies takes a more cautious stance, warning that BHEL could face significant competitive exposure if restrictions are lifted. The brokerage identified BHEL among industrial companies with the highest potential impact, alongside L&T and Afcons, depending on policy implementation details.

Policy Background and Current Restrictions

The renewed focus stems from media reports suggesting India plans to scrap restrictions imposed in 2020 on firms from countries sharing land borders with India. These measures, introduced under the Atmanirbhar Bharat package, significantly tightened scrutiny across sensitive sectors including power and energy.

Under Rule-144, bidders from these countries required registration with the Department for Promotion of Industry and Internal Trade and political clearances, effectively restricting imports of Chinese equipment and components for government-backed projects.

JM Financial: Component Relief Would Aid Execution

JM Financial emphasizes that current restrictions have hurt public sector units' cost competitiveness by forcing them to source critical components from Europe and other markets with limited supply chains. Before the curbs, Indian heavy electrical equipment manufacturers relied heavily on China for essential items including heavy castings, rotor forgings, and seamless pipes.

The brokerage argues that removal of restrictions at the component level, particularly for items like CRGO steel, would benefit BHEL through:

• Lower input costs
• Faster project execution
• Improved margin support
• Enhanced competitiveness

JM Financial suggests the urgency of capacity addition in thermal power and transmission could prompt the government to exempt select components and critical materials required for boilers, turbines, and generators.

Limited Chinese Equipment Appetite Expected

The brokerage downplays risks of Chinese suppliers regaining significant market share in India's thermal power sector. Current requests for proposals and power purchase agreements covering 97.00 GW of new thermal projects require equipment manufacturing in India.

JM Financial's channel checks indicate Chinese equipment manufacturers lack large spare capacities to venture into Indian markets, citing domestic demand absorption and geopolitical concerns.

Financial Outlook and Stock Performance

Despite the policy uncertainty, JM Financial maintains unchanged earnings estimates, projecting EBITDA margins to rise from 4.40% in FY25 to at least 10.70% in FY28. The brokerage forecasts EPS growth from 1.50 to 12.10 over the same period.

The brokerage continues to assume a 70-80% market share for BHEL and expects no meaningful shift by developers towards Chinese players. It reiterated a 'buy' rating with a target price of ₹363.00 based on March 2028 estimated earnings, arguing that any easing of curbs would strengthen execution and margins rather than undermine long-term prospects.

Bharat Heavy Electricals shares staged a strong recovery in early Friday trading, rising over 3% as investors returned to the stock following Thursday's sharp selloff. The rebound comes after policy-related concerns had triggered a broad correction across capital goods stocks.

Stock Performance and Recovery

The following table shows BHEL's recent trading performance:

The stock's recovery follows Thursday's nearly 9% decline when BHEL hit the lower circuit intraday. The selloff was triggered by reports suggesting India may ease restrictions on Chinese firms bidding for government contracts, which sparked concerns across capital goods companies including Siemens, ABB India, and L&T.

UBS Initiates Buy Rating

Buying interest returned after UBS initiated a 'Buy' rating on BHEL with a target price of ₹375 per share, implying over 35% upside from Thursday's closing levels. The brokerage cited strong order momentum and improving execution visibility as key drivers for its positive stance.

Major Order Win Details

UBS highlighted BHEL's significant contract win, with key project parameters outlined below:

This project marks the first commercial deployment of BHEL's proprietary Pressurised Fluidised Bed Gasification (PFBG) technology, representing a significant milestone for the company's technological capabilities.

Market Context and Outlook

Friday's rebound reflects selective buying in beaten-down capital goods stocks after Thursday's sharp correction across the sector. Despite recent volatility, BHEL's annual performance remains strong, with shares up approximately 28% over the past year, significantly outperforming the Nifty 50's roughly 10% gain during the same period.

The company's market capitalisation stood at approximately ₹94,700 crore at the previous close, reflecting its substantial presence in India's capital goods sector.