Maharatna PSU’s Q3 profit triples, but why brokerages are calling BHEL a SELL

Bharat Heavy Electricals Ltd (BHEL) delivered a December-quarter performance that, on the surface, looked hard to fault. The Maharatna PSU reported a nearly three-fold jump in profit and a double-digit rise in revenue, numbers that would typically excite the Street. Yet, as brokerage notes began circulating, the market mood quickly turned cautious.

Global brokerages Macquarie and CLSA have both advised investors not to be swayed by the headline growth, arguing that profit quality, margins and valuation paint a less flattering picture—and that the stock could be vulnerable after its recent rally.

Macquarie: Orders are plenty, profits are not

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Macquarie maintained its ‘Underperform’ call on BHEL with a target price of Rs 205, signalling limited comfort with the sustainability of earnings. The brokerage pointed out that while EBITDA margins improved to 6.4 per cent from 4.2 per cent a year ago, they still fell well short of its 7.6 per cent expectation.

According to Macquarie, BHEL’s expanding order book has not yet translated into consistent profitability. Execution challenges and pricing pressure, particularly in large thermal power projects, continue to cap margins, raising questions over how much of the order inflow can realistically convert into bottom-line growth.

CLSA flags valuation risk, questions earnings quality

CLSA adopted an even firmer stance, reiterating a ‘Reduce’ rating and setting a target of Rs 198, implying a potential downside of around 21 per cent from current levels.

The brokerage highlighted that the Q3 profit surge was driven largely by temporary factors, including lower non-cash provisions and sizeable foreign exchange gains, rather than a structural improvement in operating performance. CLSA also expressed concern over valuation, noting that the stock is trading at about 36 times FY27 earnings, which it believes leaves little room for disappointment.

Order book at record highs, but margin pressure persists

There is no denying the strength of BHEL’s order pipeline. The company secured new orders worth Rs 45,900 crore during the quarter, pushing its order backlog up 39 per cent year-on-year to Rs 2,22,800 crore, the highest in its history.

What investors should watch

While BHEL’s Q3 numbers make for strong headlines, analysts argue that margins and execution speed—not order wins alone—will determine the stock’s next leg. Both Macquarie and CLSA believe the stock has moved ahead of its fundamentals, raising the risk of a near-term correction.

For investors, the message is clear: look past the profit spike and track how effectively BHEL converts its record order book into sustainable cash flows. Until margin expansion becomes visible, brokerages warn that buying into the optimism could prove premature.