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How to Analyze Heavy Electricals Stocks in India: Order Inflow

Team Quartrly
The 6 numbers that decide a heavy electricals company's quarter

Heavy electricals earnings hinge on Order Inflow and Book-to-Bill Ratio, not the revenue line — a company can report strong quarterly sales today purely because of orders won two years ago, while its current order book is quietly shrinking. Because capital goods projects run 18-36 months from signing to execution, these forward-looking metrics are what actually tell you whether a company like BHEL, Thermax, or L&T is winning profitable new work right now. This guide breaks down the six metrics that decide capital goods and heavy electricals profitability in India.

Key Takeaways

  • Order Inflow is the most critical forward-looking metric, representing future revenue 2-3 years out
  • Book-to-Bill Ratio above 1.2 indicates a growing backlog and healthy demand
  • Order Book Visibility between 2-3 years is optimal; above 5 years may signal execution issues
  • Contract Assets (Retention Money) rising faster than revenue is a cash flow red flag
  • Green Mix percentage indicates positioning for the energy transition and commands valuation premiums

Quick Reference

MetricDefinitionHealthy RangeWarning Sign
Order InflowNew contracts signed in periodGrowing YoYDeclining while "pipeline" strong
Book-to-Bill RatioOrder Inflow ÷ Revenue> 1.2< 0.9 for consecutive quarters
Order Book VisibilityOrder Book ÷ Annual Revenue2-3 years> 5 years (execution issues)
Contract AssetsRevenue earned but cash not collectedStable % of revenueRising faster than revenue
Green MixNon-thermal % of orders> 25% and growing< 5% with no transition plan
Service MixService revenue as % of total> 20%< 10% (project dependency)

Understanding Heavy Electricals Metrics

Capital goods companies differ fundamentally from other sectors because revenue recognition and cash collection are decoupled by years. A company may sign a ₹1,000 crore order today but only recognize revenue in tranches over 24-36 months as project milestones are achieved. This creates a unique challenge: current-quarter revenue reflects decisions made years ago, not present business conditions.

The sector also faces structural cash flow challenges. Clients, particularly government entities and utilities, typically withhold 5-10% of contract value as retention money until warranty periods expire. This means a profitable company on paper may struggle with working capital if Contract Assets accumulate faster than collections.

Order Inflow

What it is: Order Inflow represents the total value of new contracts signed during a reporting period. It is calculated by summing all new orders received, regardless of when revenue will be recognized or cash collected.

Why it matters: Because capital goods projects take 18-36 months to execute, current revenue reflects orders won years ago. Order Inflow provides visibility into future revenue and indicates current demand strength. It is the primary leading indicator for the sector.

What good looks like: Consistent quarter-over-quarter growth in Order Inflow, with diversification across client types and project sizes. Thermax reported order booking of ₹3,551 crore in Q2 FY25, representing 6% growth despite profit challenges.

Red flag: Declining Order Inflow while management emphasizes "strong pipeline" warrants caution. Pipeline represents potential opportunities; Inflow represents signed contracts. Also watch for "slow-moving orders" where clients have not secured necessary clearances.

Example from earnings call:

"Despite profit challenges, order booking grew 6% to Rs 3,551 crore, with the order balance reaching Rs 12,300 crore." — Thermax Q2 FY25 Earnings Call

Book-to-Bill Ratio

What it is: Book-to-Bill Ratio is calculated by dividing Order Inflow by Revenue for the same period. A ratio above 1.0 means the company is adding orders faster than it is executing them, growing the backlog.

Why it matters: This ratio indicates whether the order book is expanding or shrinking. A consistently high Book-to-Bill suggests strong demand and future revenue growth, while a declining ratio may signal weakening order momentum.

What good looks like: A Book-to-Bill Ratio above 1.2 indicates healthy order momentum. Ratios between 1.0-1.2 suggest stable business conditions. Top-performing capital goods companies maintain ratios of 1.2-1.5 during growth phases.

Red flag: Book-to-Bill below 0.9 for consecutive quarters indicates the company is executing faster than it is winning new business, depleting future revenue visibility.

Order Book Visibility

What it is: Order Book Visibility is calculated by dividing the total Order Book (unexecuted orders) by Annual Revenue. It represents the number of years of work currently contracted but not yet executed.

Why it matters: This metric indicates how far into the future a company has revenue certainty. Adequate visibility provides stability and allows for capacity planning, while insufficient visibility creates uncertainty.

What good looks like: Order Book Visibility of 2-3 years is considered optimal for most capital goods companies. This provides sufficient revenue certainty while indicating the company can execute orders at a reasonable pace.

Red flag: Visibility exceeding 5 years, while appearing positive, often indicates execution challenges. BHEL has historically maintained very high visibility (5-6 years) due to large government orders, but this reflects slow execution rather than strength. Conversely, visibility below 1 year suggests the company lacks near-term revenue security.

Contract Assets (Retention Money)

What it is: Contract Assets, also called Retention Money, represent revenue recognized for work completed but not yet collected in cash. In capital goods projects, clients typically withhold 5-10% of contract value until warranty periods expire, which can extend 12-24 months post-completion.

Why it matters: This metric explains the gap between accounting profits and actual cash generation. A company may report strong revenue and profit growth while experiencing negative operating cash flow if Contract Assets are accumulating.

What good looks like: Contract Assets as a percentage of revenue should remain stable or decline over time. A declining ratio indicates the company is successfully collecting retention money from completed projects.

Red flag: Contract Assets rising faster than revenue growth signals cash trapped in completed projects. This often occurs with government clients or projects facing disputes.

Example from earnings call:

"The Trade Receivables were at ₹6,544 Crore and Contract Assets stand at ₹29,740 Crore. The increase in receivables is mainly on account of skewed payment terms in contracts under execution." — BHEL Annual Report

Green Mix

What it is: Green Mix represents the percentage of Order Inflow or Order Book derived from non-thermal (renewable energy, waste-to-energy, emission control) projects. It indicates a company's exposure to the energy transition.

Why it matters: Thermal power equipment demand is structurally declining as India shifts toward renewable energy. Companies with higher Green Mix are better positioned for long-term growth and typically command higher valuation multiples.

What good looks like: Green Mix above 25% and growing indicates successful diversification. Thermax has emerged as a leader in this transition, with its Green Solutions segment reporting 415% growth in Q2 FY25.

Red flag: Green Mix below 5% with no clear transition strategy suggests the company remains dependent on declining thermal markets.

Example from earnings call:

"The Green Solutions segment saw 415% growth, while Industrial Products increased by 18%." — Thermax Q2 FY25 Earnings Call

Service Revenue Mix

What it is: Service Revenue Mix represents the percentage of total revenue derived from after-sales service, maintenance contracts, and spare parts rather than new equipment sales. Also referred to as TOESL (Turnkey, Operations, Engineering Services, and Lifecycle services) mix.

Why it matters: Service revenue is typically higher-margin and more predictable than project-based revenue. A higher service mix provides earnings stability and reduces dependence on lumpy order wins.

What good looks like: Service mix above 20% indicates a mature installed base generating recurring revenue. Leading global capital goods companies maintain service mix of 30-40%.

Red flag: Companies with service mix below 10% remain fully dependent on volatile project-based revenue, leading to unpredictable earnings.

Special Considerations: The L1 Bidding Challenge

In India, government tenders typically award contracts to the L1 (Lowest) bidder. This creates a structural challenge for capital goods companies serving public sector clients.

To win orders and maintain factory utilization, companies may bid aggressively, sometimes at minimal or zero margins. The strategy relies on making profits through variation orders (changes to scope) or subsequent service contracts. However, this approach carries execution risk and can result in orders that generate revenue but minimal profit.

When evaluating order announcements, investors should consider not just order size but also likely margin. A ₹10,000 crore order at 2% EBITDA margin contributes less to value than a ₹2,000 crore order at 12% margin.

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