China factor explained: Jefferies and JM Financial analysts decode the upside and risks for BHEL shares after 10% crash

The prospect of India easing restrictions on Chinese firms bidding for government contracts has diverging opinions on Bharat Heavy Electricals Ltd, with some analysts flagging heightened competitive risk while others argue that any policy shift is more likely to ease cost pressures and improve execution for the state-owned power equipment maker.

JM Financial said a rollback of curbs, particularly at the component level, would benefit BHEL by lowering input costs and shortening project timelines, while even a broader relaxation would have “little impact” on its business given domestic sourcing rules and past experience with Chinese suppliers. Jefferies, by contrast, cautioned that BHEL could be among the industrial names facing the highest exposure if restrictions are lifted, depending on how the policy is implemented.

Shares of BHEL rose as much as 4.8% on Friday to Rs 285.50 on the BSE. The stock is down 5% over the past week and has fallen 2.6% so far in 2026.

The renewed focus on China follows media reports that India plans to scrap restrictions imposed in 2020 on firms from countries sharing a land border with India from participating in public procurement. Those measures, introduced under the Atmanirbhar Bharat package and amendments to the General Financial Rules, tightened scrutiny of such bidders across a range of sensitive sectors, including power and energy.

Under Rule-144, bidders from these countries were required to register with the Department for Promotion of Industry and Internal Trade and obtain political and security clearances, effectively restricting imports of Chinese equipment and components for government-backed projects. The Ministry of Power later directed entities under it to comply with public procurement norms aimed at promoting indigenous manufacturing of power equipment.

According to JM Financial, the restrictions hurt public sector units’ cost competitiveness and execution by forcing them to source critical components from Europe and other markets with limited supply chains. Before the curbs, Indian heavy electrical equipment manufacturers relied heavily on China for items such as heavy castings, rotor forgings and seamless pipes.

“Removal of restrictions at the components level (e.g., CRGO steel) will benefit PSUs like BHEL,” the brokerage said, arguing that lower costs and faster execution would ultimately support margins.

JM Financial said the urgency of capacity addition in thermal power and transmission could prompt the government to exempt select components and critical materials required for boilers, turbines and generators. Under a scenario where restrictions are eased only as per Rule-144, it said BHEL would see clear benefits. Even if the relaxation extends beyond that, an outcome it described as unlikely, the impact would remain negligible.

The brokerage also downplayed the risk of Chinese suppliers regaining ground in India’s thermal power market. Requests for proposals and power purchase agreements covering 97 GW of new thermal projects require equipment to be manufactured in India, it said.

Past experience has also shaped policy thinking. In 2013, the Central Electricity Authority concluded that the performance of Chinese power plant equipment was “not satisfactory” on parameters including efficiency and maintenance, with incidents reported at plants such as WBPDCL Sagardighi and HPGCL Yamunanagar.

JM Financial added that Chinese manufacturers are currently absorbed by domestic demand, with China expected to add 80 GW of new coal capacity in 2025 and similar volumes in 2026 and 2027. “As per our channel checks, equipment manufacturers in China don’t have large spare capacities to venture into India markets,” it said, also citing geopolitical and cyber-security concerns.

Jefferies struck a more cautious tone, describing the development as a “potential negative”. While defence would see the least impact, the brokerage said “L&T, Afcons and BHEL are likely to see the highest impact,” followed by ABB and CG Power.

It said details are awaited on whether the proposed policy change will materialise and on the nuances, with published reports highlighting thermal power equipment and railways as possible areas of relaxation.

JM Financial said it continues to assume a 70–80% market share for BHEL and does not expect any meaningful shift by developers towards Chinese players. It kept its earnings estimates unchanged, forecasting EBITDA margins to rise from 4.4% in FY25 to at least 10.7% in FY28 and EPS to increase from 1.5 to 12.1 over the same period.

The brokerage reiterated a ‘buy’ rating on BHEL with a target price of Rs 363 based on March 2028 estimated earnings, arguing that any easing of curbs would strengthen execution and margins rather than undermine the company’s longer-term prospects.

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