The Centre's decision to place Bharat Heavy Electricals Limited (BHEL) and Steel Authority of India Limited (SAIL) on a one-year notice stems from a single critical failure: both companies do not meet the Maharatna requirement of maintaining an average annual profit after tax (PAT) exceeding ₹5,000 crore over the preceding three years. This is the first instance since the Maharatna framework was introduced that companies face formal downgrade warnings, signaling a shift toward performance-based recognition rather than historical achievements.
Among India's 14 Maharatna companies, BHEL and SAIL are the only two falling short on this profitability benchmark. Both comfortably meet other criteria—average annual turnover exceeding ₹25,000 crore and net worth above ₹15,000 crore—but profitability remains the principal concern. SAIL last met the three-year average PAT threshold in 2022-23, while BHEL's PAT has shown significant improvement from ₹534 crore in FY25 to ₹1,578 crore in FY26, yet remains far below the required level.
BHEL's fundamental problem lies in the disconnect between its massive order book and actual revenue recognition. The company holds an outstanding order book of approximately ₹2.4 lakh crore—7.2 times its trailing twelve-month revenues—providing exceptional long-term demand visibility. However, execution delays and slower project conversion continue to weigh heavily on near-term revenues and profitability.
In Q1 FY26, BHEL secured fresh orders worth ₹13,445 crore but reported flat revenue of ₹5,487 crore and a net loss of ₹455 crore. This pattern highlights a company with huge long-term demand visibility but weak near-term execution. The power segment reports persistent losses, while the industry segment grew 17% year-on-year with profits, partially offsetting power business weakness. Rising material costs, higher employee expenses, and overdue receivables further squeeze margins, creating a liquidity risk from high demand for cash due to rising debtors. AnnualReports
SAIL faces different but equally pressing challenges. The company has demonstrated strong operational performance with FY26 PAT growing 51% to ₹3,233 crore and sales volume reaching a record 19.9 million tons. However, structural cost disadvantages prevent it from achieving the ₹5,000 crore PAT threshold consistently. AnnualReports
Approximately 40% of its coking coal requirement is imported, exposing it to global price volatility. Coking coal spot prices peaked near $320/ton in 2024, up from around $180/ton in 2022, while raw material costs rose 18% year-on-year in FY24. These cost pressures compress margins even during favorable demand conditions. Additionally, employee costs and legacy plant inefficiencies create operational constraints reflected in weaker return on equity and return on capital employed compared to private peers.
The one-year review period creates significant strategic constraints on both companies. Short-term performance pressure conflicts with long-term strategic investments, potentially causing boards to defer necessary modernization or R&D expenditures to show immediate profitability improvements. Capital allocation flexibility becomes severely reduced, impacting ability to pursue growth opportunities.
This would constrain joint venture formation, mergers and acquisitions, and human resource autonomy, potentially creating a self-reinforcing cycle of reduced growth and continued performance challenges.
Both companies operate in sectors undergoing significant transformation. BHEL faces the dual challenge of declining long-term coal demand and intensifying competition in renewables and transmission. India targets 500 GW of non-fossil fuel capacity by 2030, with non-fossil sources already constituting 49% of total capacity. While thermal power represents over 50% of installed capacity, the secular slowdown in thermal plant market growth—projected at just 1.65-3.95% CAGR through 2030-2035—creates long-term headwinds.
SAIL contends with global steel market fluctuations and import competition. The 12% safeguard duty on flat steel imports extended in early 2026 provides some price support, but the company's higher cost structure makes it vulnerable to Chinese steel dumping and global oversupply. Domestic steel demand growth of 7.4% in calendar year 2026—well above the global average of 0.3%—provides some support, but SAIL must navigate cyclical industry conditions while meeting consistent profitability targets.
For BHEL, the immediate priority must be working capital optimization.
Project execution excellence is equally critical—fast-tracking completion of projects at 70-80% completion stage would accelerate revenue recognition. The company should also leverage its 120+ GW installed base for high-margin aftermarket services, targeting services revenue growth from ₹9,200 crore to ₹12,000-13,000 crore.
SAIL's turnaround requires product mix transformation toward value-added and specialty steels. The company targets raising its value-added to total sales ratio to 45% by 2027, focusing on head-hardened rails, CRGO steel, and automotive grades with margin premiums of 15-30% over commodity products. Operational efficiency improvements through blast furnace productivity enhancement, waste heat recovery systems targeting 5-8% energy cost reduction, and continued debt reduction—building on the ₹8,150 crore reduction achieved in FY26—are essential.
Both companies must demonstrate substantial annual PAT growth within the one-year timeframe to retain Maharatna status. The stakes extend beyond prestige—downgrade would fundamentally alter their strategic positioning, competitive capabilities, and long-term growth prospects, potentially creating lasting competitive disadvantages against private sector peers with greater decision-making autonomy and financial flexibility.
