BHEL OFS opens for retail investors today: Should you buy after stock crash negated discount price?

The government's offer for sale (OFS) in Bharat Heavy Electricals Ltd (BHEL) opens for retail investors today at a floor price of Rs 254 per share. The Centre is selling up to a 3% stake, with an additional 2% greenshoe option. Importantly, this is a stake sale by the government and not a fresh issue — the proceeds will go to the exchequer and not to BHEL, meaning the company’s balance sheet or debt position will remain unchanged.

At the time of announcement, the floor price represented roughly an 8% discount to the prevailing market price of around Rs 276. However, the stock corrected sharply after the announcement and slipped closer to Rs 260, narrowing the effective discount to just 2-3%.

Abhinav Tiwari, Research Analyst at Bonanza, believes investors should tread carefully. He points out that even at Rs 254, BHEL trades at relatively high valuation multiples compared with its current return profile.


"While earnings have improved and the order book stands above Rs 2 lakh crore, return ratios such as ROIC and ROCE remain modest. A large part of the capex revival and earnings recovery appears already priced in. Limited discount, rich valuation, PSU overhang and execution risks in large EPC projects make the issue less compelling for fresh applications," he said.

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On the other hand, JM Financial remains constructive on the stock and has maintained a Buy rating. At the OFS floor price, the brokerage estimates BHEL trades at around 21x FY28 earnings, compared with about 23x FY28 earnings at prevailing market levels. It has a target price of Rs 355, implying meaningful upside over the medium term.

The bullish thesis is built on India's long-term thermal capacity expansion plans. The country aims to reach 340 GW of coal-fired capacity by 2047. Even after accounting for projects under construction and plant retirements, JM Financial estimates India will require 170-180 GW of new thermal capacity to maintain its installed base.

After nearly five to six years of weak ordering, a new thermal capex cycle began in September 2022. Of the 97 GW targeted for addition by FY34, about 45 GW has already been ordered and another 32 GW is under tendering. BHEL currently has an order book of Rs 2.23 lakh crore, including 35 GW under execution, providing strong revenue visibility.

Margin recovery is expected to be the key differentiator in this cycle. Older low-margin projects are nearing completion, and execution is gradually shifting toward newer, higher-margin orders. JM Financial expects EBITDA margins to expand to 10.7% by FY28 from 4.4% in FY25. It projects revenue, EBITDA and PAT to grow at a CAGR of 20%, 62% and 98%, respectively, between FY25 and FY28, with EPS rising sharply over the same period.

Beyond thermal power, BHEL also has optionality in nuclear energy and coal gasification. India plans to expand nuclear capacity to 100 GW by 2047 from 8.8 GW currently, and BHEL is the sole domestic manufacturer of nuclear turbine generator sets. It has also secured significant orders in coal gasification and transmission projects, which could diversify earnings over time.

Still, risks remain. A faster-than-expected shift to renewables plus storage, delays in tendering or execution, and lingering PSU-related supply overhang could weigh on sentiment.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)