Detailed Rationale

Crisil Ratings has revised its outlook on the long-term bank facilities of Bharat Heavy Electricals Ltd (BHEL) to ‘Stable’ from ‘Negative’ while reaffirming the rating at ‘Crisil AA-’. Further, Crisil Ratings has reaffirmed its ‘Crisil A1+’ rating on the short-term bank facilities of the company.

 

The outlook revision reflects the improvement in the business risk profile of the company, marked by growing revenue and profitability, supported by its market leadership position in the boiler turbine generator (BTG) space, which resulted in one of the highest outstanding order books of Rs 1.96 lakh crore at the end of fiscal 2025, providing healthy revenue visibility over the medium term. The revenue to order book ratio stood at 6.9 times as on March 31, 2025. Further orders from critical sectors, such as railways and defense, and completing orders of legacy projects, have strengthened the overall quality of the order book. BHEL's focus on increased execution and timely delivery of projects will lead to healthy revenue growth over the medium term.

 

Revenue in fiscal 2025 grew ~19% on the back of higher execution, with the power segment contributing 74% of the total revenue in fiscal 2025 (77% in fiscal 2024) and the industry segment including exports generating the rest.

 

Overall operating margin improved to 4.4% in fiscal 2025 from 3.2% in fiscal 2024. Going forward, the operating margin may further improve to 7-8% over the medium term, driven by completion of major legacy projects, increased execution in the new projects having better terms, in-built price escalation clauses,thrust on indigenous technology and operating leverage benefits.

 

The working capital cycle continues to remain stretched, with fund-based utilisation exceeding 90% on average in the past 12 months. However, improving operating profitability and increased customer advances will support the growing working capital needs and will keep debt levels stable.

 

The financial risk profile remained healthy, marked by stable debt levels of ~Rs 8,795 crore in fiscal 2025, (~Rs8,808 crore in fiscal 2024), supported by non-interest-bearing customer advances amounting to ~Rs 15,300 crore which increased from ~Rs 7,200 crore in fiscal 2024. The capital structure marked by gearing and total outside liabilities to tangible networth (TOL/TNW) ratio remained comfortable at 0.36 time and 1.58 times, respectively, in fiscal 2025. Financial risk profile is expected to remain healthy on the back of improving cash accrual and stable debt levels despite higher working capital requirement.

 

Liquidity remains strong too, marked by sufficient net cash accrual and unencumbered cash and bank balance of Rs 7,612 crore as on March 31, 2025.

 

The ratings continue to reflect the leading market position of BHEL in the BTG segment and its strong financial risk profile. These strengths are partially offset by structural issues in the power sector, longer execution cycle for the power projects and large working capital requirement. 

Analytical Approach

Crisil Ratings has moderately combined the business and financial risk profiles of BHEL and its joint venture (JV). Crisil Ratings has factored in net provisions to arrive at the operating profit before depreciation, interest and taxes.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

Leading position in the BTG and heavy electrical equipment markets: BHEL is the leading player in India's BTG and heavy electrical equipment markets, accounting for over 50% of the country’s installed capacity of conventional power projects. BHEL is a government entity with the Maharatna status and has superior execution capabilities, which support its dominant market presence. BHEL has a market share of above 80% in the 800-megawatt segment in all the tenders floated in the thermal power segment for the past 18-24 months. Most of the projects being implemented in the thermal power industry in the country are executed by BHEL. Along with a leading position in the thermal power segment, BHEL has diversified into other areas such as hydropower, nuclear power, power transmission, defence, rail transportation, which will drive growth of the company in the long run.

 

Strong order book, providing strong revenue visibility over the medium term: The order book of BHEL grew 49% on year on higher base of fiscal 2024 to Rs 1.96 lakh crore as on March 31, 2025. The company received Rs 92,535 crore of fresh orders, with new orders from the power sector growing 46% on year to Rs 81,349 crore. In the past 24 months, the company received 24.5 gigawatt of fresh thermal power orders which is to be implemented in the next 48-60 months. Order book outstanding from the industry segment has also improved, with total outstanding orders at Rs 34,826 crore, which is the highest ever for the company. The industry orders included orders from defence, railways (supply of 80 Vande Bharat trains with sleeper coaches) and high voltage power evacuation projects. The company is also working on coal gasification project with Coal India Ltd and and has already formed a JV with Coal India Limited for production of ammonium nitrate which if achieve, will have opportunity for substantial orders in the long term. The growing order book, along with better pricing flexibility and payment terms in the newer contracts, will support the operating margin and working capital cycle over the medium term.

 

Healthy financial risk profile: The financial risk profile remained healthy, marked by stable debt despite growing working capital needs due to growing revenue keeping the leverage ratio like gearing and TOL/TNW low. Total debt declined marginally to Rs 8,795 crore as on March 31, 2025, from Rs 8,808 crore a year ago, despite growing working capital need. Leverage ratios like gearing and TOL/TNW in fiscal 2025 remained low at 0.36 time (0.36 time in fiscal 2024) and 1.58 times (1.25 times) respectively. The TOL/TNW ratio inched up higher primarily due increase in customer advances to ~Rs 15,300 crore in fiscal 2025 compared to Rs 7,200 crore in fiscal 2024. The company is expected to manage its incremental working capital needs effectively through internal cash accrual and customer advances keeping the debt stable at Rs 8,500-9,000 crore. Thus, gearing is expected to remain lower than 0.4 time in the near to medium term. Debt protection metrics also improved with interest coverage ratio growing to 2.4 times for fiscal 2025 compared to 1.6 times in fiscal 2024. With stable debt and improving operating profits, this is expected to improve to above 4 times in the near term.

 

Weaknesses:

Issues in the power sector, leading to delay in project delivery: The power segment has traditionally accounted for a majority of BHEL’s revenue. The company’s profitability, hence, remains exposed to volatility in the power sector and structural issues such as delays in land acquisition and environmental clearances, availability of fuel and fundings and weak financial position of many state power utilities, which were among its key clients. Over the past several years, such issues have slowed the execution of certain projects. However, the current orders of coal-based thermal projects include central and private utilities with strong financial position. Subsequent to the peak demand and energy deficit scenario in fiscal 2023, the Government of India (GoI) proposed to set up an additional minimum of 80 GW coal-based capacity by 2031-32. A renewed thrust on energy security has brought coal-based electric power back to the forefront of energy planning. The ordering of more than 25 GW of thermal power projects since fiscal 2023 shows the intent of the government to revive the sector. BHEL, being the leader in the BTG segment received orders for 24.5 GW during fiscal 2024 and fiscal 2025. Although BHEL has been focusing on diversifying its revenue by expanding into segments such as transportation, transmission, renewables, emission control and defence in the past few years, its performance will remain sensitive to the power sector, which forms majority of the revenue and order book over the medium term.

 

Large working capital requirement: BHEL continues to have high working capital requirement with sizeable receivables, including contract assets and inventory levels. However, the risk of doubtful receivables is largely mitigated as around 80% debtors are either to central or state public sector undertakings. In fiscal 2025, the company improved on its debtors (including contract assets) to less than 500 days compared to 530 days in fiscal 2024. This shows that the company has increased its efforts in the recovery process and contract assets are being monitored closely. Also, coupled with the growing order book, customer advances also increased to above ~Rs 15,300 crore in fiscal 2025 from ~Rs 7,200 crore in fiscal 2024. This further helped the company manage its incremental working capital requirement. Over the medium term, with growing revenue, contract assets may increase in absolute terms, but the aging of contract assets is expected to improve as newer contracts have earlier milestones for billing. Also, since the intensity of production has increased, the inventory days increased to 132 days in fiscal 2025. This is expected to inch up higher as BHEL ramps up its execution. Majority of the inventory is expected to be in work in progress which will support faster execution. The incremental working capital needs will be supported by growing internal cash accrual and increasing customer advances. However, the ability to further improve on receivables inclusive of contract assets, which stood at over Rs 38,000 crore as on March 31, 2025, on a sustained basis remains monitorable.

Liquidity: Strong

Liquidity is driven by free cash and equivalent of around Rs 7,612 crore as on March 31, 2025, and commercial paper limit of Rs 5,000 crore that largely remain unutilised. The company has fund-based working capital limit of Rs 9,500 crore, which was utilised at 92% on average during the six months through May 2025. The company has nil term debt. It plans annual capital expenditure of ~Rs 500 crore per annum over the medium term, which will be funded through internal cash accrual. The incremental working capital requirement will be funded through internal cash accrual and customer advances.

 

ESG profile

The environment, social and governance (ESG) profile of BHEL supports its already strong credit risk profile. The sector has a moderate environmental and social impact, driven by high water consumption and direct impact on the health and wellbeing of stakeholders.

 

BHEL’s focus on addressing these ESG risks supports its already strong credit risk profile.

 

Key ESG highlights

• BHEL has set up nearly 41.8 megawatt-peak capacity of solar power plants, which has helped the company reduce electricity consumption. This large-scale solarisation helped in reducing carbon footprint of 28,704 MTCO2 -equivalent during fiscal 2025.
• BHEL has installed 140 rainwater harvesting systems and 21 effluent treatment plants and 19 sewage treatment plants to manage grey water sustainably.
• Its governance structure is characterised by 27% of its board comprising independent directors as of March 2025. The position for chairman and CEO is not split. BHEL has a committee at the board level to address investor grievances.

There is growing importance of ESG among investors and lenders. The commitment of BHEL to ESG principles will play a key role in enhancing stakeholder confidence, given the high share of market borrowing in the company’s overall debt and access to both domestic and foreign capital markets.

Outlook: Stable

BHEL’s profitability will improve over the medium term due to better order execution, leading to improving operating leverage. Customer advances in the new orders along with improvement in the operating profitability will fund the additional working capital requirement and keep debt stable despite increased working capital requirements. The operating margin is expected to improve with the improved quality of the order book and various initiatives taken by the company to improve efficiency.

Rating sensitivity factors

Upward factors

• Sustained improvement in scale of operations, with earnings before interest, taxes, depreciation, and amortisation margin at 7-8% on the back of higher-than-expected order execution
• Improvement in working capital cycle and reduction in GCAs with reduction in contract assets outstanding.

 

Downward factors

• Weakening of the business risk profile through low order intake or delay in execution of orders, resulting in reduced scale of business
• Operating profit margin remaining below 3% on a sustained basis
• Continuous increase in debt, leading to moderation of leverage ratios especially the TOL/TNW ratio declining below 1.8 times.

About the Company

BHEL is an integrated power plant equipment manufacturer. This Maharatna public sector enterprise is one of the largest engineering and manufacturing companies in India. The Government of India holds 63.17% of equity in BHEL.

 

BHEL has operations in the power and industry segments. The power division supplies power plant equipment such as turbo generators, boilers, turbines and accessories and erects all types of plants based on gas, coal, hydro, nuclear and solar power. The industry division caters to diverse sectors such as process industries, transportation, power transmission and distribution, and defence. BHEL designs, engineers, manufactures, constructs, tests, commissions and services a wide range of products. It has 16 manufacturing units and four active JVs. It has a widespread overseas footprint with references in 91 countries.

Any other information: Not Applicable