Defence PSU Stock to Buy Now with 20% Upside Potential

Synopsis:- Backed by a blockbuster Q4 FY26 performance that saw net profit jump 154 percent year-on-year, Morgan Stanley has maintained its ‘Overweight’ rating on Bharat Heavy Electricals and raised its price target to ₹444, implying nearly 20 percent upside from current levels, citing accelerating project execution, power segment margin stability, and a meaningful improvement in operating cash flows.

Shares of a leading public-sector engineering company had one of their best sessions in recent memory after the company dropped a quarterly scorecard that was difficult to argue with. A major global brokerage took notice almost immediately, revising its outlook sharply upward on the same day results hit the street. 

With a market capitalization of approximately Rs. 134,408 crore, the shares of Bharat Heavy Electricals Limited were trading at Rs. 384.60 per share on May 6, 2026, with a 52-week range of Rs. 399 to Rs. 205.12. It is trading at a P/E of approximately 84. 

Morgan Stanley Rating Update

Morgan Stanley maintained its ‘Overweight’ rating on BHEL and raised its price target to ₹444 from ₹304 earlier, a hike of nearly 46 percent in the target itself. At the current market price of ₹377, the revised target implies upside of close to 15 percent. The brokerage flagged that Q4 delivered on multiple fronts: execution picked up pace, margins in the power segment held firm, and operating cash flows improved in a way that signals the business is converting its large order backlog into actual earnings with greater discipline.

The brokerage specifically pointed to receivables improvement as a structural positive. BHEL’s combined trade receivables and contract assets stood at Rs. 38,613 crore as of March 31, 2026, versus Rs. 38,375 crore a year ago, a relatively contained increase despite 37 percent revenue growth in Q4. That tells a story of tighter working capital management rather than one of runaway billing without collection.

Business and Financial Overview

Bharat Heavy Electricals Limited, incorporated in 1964 and listed on both BSE and NSE, is India’s largest state-owned engineering and manufacturing company in the energy and capital goods space. The company operates across power generation, transmission, defense, and industrial segments through fifteen manufacturing units. In Q4 FY26, it commissioned or synchronized approximately 8.9 GW of power capacity, the strongest execution run in recent memory.

The Q4 FY26 standalone numbers were the cleanest BHEL has posted in several years. Revenue from operations came in at Rs. 12,310 crore, up 37 percent year-on-year from Rs. 8,993 crore. EBITDA doubled to Rs. 2,005 crore from Rs. 990 crore in Q4 FY25. Net profit rose to Rs. 1,283 crore, more than double the Rs. 504 crore reported a year ago. 

For the full year FY26, revenue crossed Rs. 33,782 crore with 19 percent growth, while PAT climbed to Rs. 1,578 crore from Rs. 513 crore in FY25. The order book hit a record high of approximately Rs. 240,000 crore, with the power segment accounting for 81 percent of outstanding orders. 

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