Can BHEL reclaim its crown?

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₹613 crore, thanks to the doubling of other expenses. Additionally, the balance sheet worsened with borrowings rising by 64% to ₹8,808 crore. More debt was taken to finance working capital as receivables went up and payables declined, which meant that finance cost jumped up by 40%, causing pre-tax earnings to drop by a sharp 68% to ₹220 crore.

Though earnings appear modest, investors may be anticipating a better outlook. This optimism is due to the outstanding order book expanding to ₹1.3 trillion, a 44% increase, attributed to the highest ever yearly order booking of ₹77,907 crore, nearly 3x the previous year. In recent years, the bill-to-book ratio has been about 25%, meaning annual turnover is about one-fourth of the outstanding order book of the previous year, reflecting a typical execution cycle of four years.

Applying this criterion, the best-case scenario for BHEL is a topline of ₹33,000 crore for FY25. With a gross margin of 30% and other costs at FY24 levels, this should translate into an Ebitda of ₹3,400 crore, nearly 5x the FY24 Ebitda due to operating leverage. However, the current market capitalization is already 30x the potential Ebitda.

Note that BHEL’s financial performance peaked in FY13 when it reported an operating income of around ₹50,000 crore with gross and Ebitda margins at about 40% and 20%, respectively. The revival in thermal power capacity addition is unlikely be enough to return to the glory days of peak performance. Plus, the revival may not be for a sustained period as there is a visible shift towards renewable energy.