BHEL Shares Tumble on China Tender Fears, Analysts Urge Calm
Overview
BHEL shares dropped as India considers allowing Chinese firms in government tenders for power equipment. While competition fears are high, analysts suggest the threat to BHEL's significant market share is overstated due to past quality issues with Chinese products and the current cautious investment climate. Focus remains on BHEL's execution of its large order backlog.
Stocks Mentioned
Policy Shift Sparks Selloff
Shares of Bharat Heavy Electricals Limited (BHEL) slumped Friday following reports that India is considering removing restrictions on Chinese companies participating in government tenders. The potential policy change could significantly alter the competitive landscape for public procurement contracts, particularly within the power equipment sector where BHEL holds a commanding market share.
Past Experiences Temper Concerns
Despite the immediate investor reaction, analysts suggest the threat from Chinese competition may be overstated. Historically, even during periods of peak thermal power capital expenditure when Chinese firms were active, BHEL maintained its formidable position. Private sector contracts were occasionally awarded to Chinese vendors due to lower prices and favorable payment terms, compounded by BHEL's own order backlog and extended execution cycles. However, persistent quality and performance issues with Chinese equipment have since made local thermal power producers cautious.
State-Owned Giants Favor Local Players
Furthermore, the thermal power sector is not experiencing the unbridled capital expenditure seen in the past. Investments are now more calculated, with state-owned entities driving a significant portion. These government entities have historically demonstrated a preference for BHEL and other local vendors. Recent contract awards by these companies have largely favored BHEL, even with alternative private sector vendors present.
Analyst Outlook Mixed
Analysts at Antique Stock Broking noted that "even if hypothetically Chinese BTG imports are freely allowed into the country, Indian developers will be extremely cautious on imports." BTG refers to boiler turbine generators, the core equipment for thermal power plants. Conversely, some analysts see potential benefits. Experts at JM Financial Institutional Securities suggested that easing restrictions at the component level, such as for CRGO steel, could benefit public sector undertakings like BHEL by enabling them to source inputs more cost-effectively.
BHEL's Order Book and Execution Challenges
BHEL has secured a substantial number of thermal power equipment orders in recent years, driven by its strong market standing and renewed capex in the sector. The company achieved its highest annual order bookings in over two decades in fiscal year 2025 and anticipates robust inflows in the current fiscal year (FY26). While this provides good revenue visibility, execution has lagged expectations due to initial challenges at client sites. Analysts at ICICI Securities cited lower-than-expected execution for cutting FY26 earnings forecasts, anticipating earnings acceleration from FY27 onwards as these issues resolve. Improvement in execution and revenue conversion will be crucial for BHEL stock's future returns.
