Top 3 Small-Cap Stocks with Low PE

A smaller Price-to-Earnings (P/E) ratio is generally considered better than a larger one. The P/E ratio is a valuation metric that compares a company's stock price to its earnings per share (EPS). It provides an indication of how much investors are willing to pay for each unit of earnings.

A low P/E ratio can be interpreted in a few ways:

1. Undervalued Stock: A small P/E ratio may suggest that the stock is undervalued relative to its earnings potential. Investors are paying less for each unit of earnings, which could indicate a potential buying opportunity.
2. Attractive for Value Investors: Value investors often seek stocks with lower P/E ratios because they believe that the market has not fully recognized the company's true value, and the stock price may rise in the future.
3. Lower Risk: Stocks with lower P/E ratios may be considered less risky since the company's earnings are expected to cover the stock price in a shorter time frame.

Some reasons for a low P/E ratio may include:

1. Poor Growth Prospects: The market might have a negative outlook on the company's growth potential, leading to a lower valuation.
2. Financial Troubles: Companies facing financial difficulties may have low P/E ratios, but investing in such companies can be risky.
3. Cyclical Nature: Certain industries have naturally lower P/E ratios due to their cyclical nature, and comparing their P/E ratios with those of other industries might not be meaningful.

On the other hand, a high P/E ratio can indicate that investors are willing to pay a premium for the company's earnings, expecting high growth or optimistic future prospects. A high P/E ratio could be justified if the company is experiencing rapid growth and has strong potential for further expansion.

Out of Nifty Small-Cap 100, following are the top 3 stocks with lower P/E:

1. Indian Bank 

Indian Bank is a major public sector bank in India and has been performing well. It has a total business worth over 11 lakh crore rupees. The bank operates all over India with a wide network of 5787 domestic branches.
Indian Bank offers a diverse range of loans, with a significant portion (about 60% of its portfolio) catering to retail, agriculture, and MSME (Micro, Small, and Medium Enterprises) sectors.

Key Highlights:
I. Indian Bank plans to focus on its Retail, Agri, and MSME (RAM) segments to grow and maintain its profit margins. They expect to attract more term deposits, but this might increase their cost of funds due to higher interest rates. To keep their margins steady, they will concentrate on higher-yielding areas like personal & gold loans in retail and micro loans in MSME.
II. The bank aims to grow its advances (loans) by 10-12% and deposits by 8-10% in the next fiscal year (FY24E). They plan to manage their operating expenses well and reduce bad loans (slippages), which will help them control credit costs and improve their profitability (Return on Assets or RoA).
III. By taking measures to recover loans and improve the credit rating of borrowers, they expect the proportion of bad loans (GNPA) to be less than 5%. They will invest in expanding branches and technology to support growth and efficiency.

Key Risk:
i. Steeper rise in CoF could impact margins, 
ii. Higher than anticipated tax rate
Financial Performance:
I.The bank foresees a gradual increase in their RoA to 0.8-0.9% by FY24-25E. 
II. Overall, the bank is working to grow its business, maintain financial stability, and improve profitability.

Outlook:
The Credit growth guidance at 10-12%, GNPA <5% in FY24E.

Financial Summary:

Indian Bank Share Price

2. Rail Vikas Nigam

Rail Vikas Nigam Ltd was established in 2003 by the Government of India. Its main purpose is to work on different railway infrastructure projects assigned by the Ministry of Railways. These projects include activities like adding new railway tracks, converting existing tracks to a different size, electrifying railways, building major bridges, workshops, and production units. The company also shares freight revenue with the Railways based on the agreement they have with the Ministry of Railways.

Key Highlights:
I. They recently received a contract worth ₹808.48 crores from the National Highways Authority of India for a project in Odisha.
II. As of July 13, 2023, their share price was ₹118.65, showing a positive trend over various periods. In the last 3 years, their stock generated a return of 511.14%, outperforming industry benchmarks.
III. Overall, Rail Vikas Nigam has displayed solid financial performance and growth potential, making it an attractive investment option.

Key Risk:
Earnings include an other income of ₹ 1,155 Cr.
Financial Performance:
I. Key ratios indicate moderate debt levels and efficient use of assets to generate profits. 
II. The company also offers dividends, with a dividend per share of ₹1.50 and a dividend yield of 5.05%.

Outlook:
The company is expected to give good quarter result.

Financial Summary:

Rail Vikas Nigam Share Price

3. PNB Housing Finance

Key Highlight:
I. PNB Housing Finance's results for Q1FY24 were better than expected due to increased Net Interest Margins (NIM) and lower credit costs. The loan growth was modest at 5.4% year-on-year, as higher retail loans (12% YoY increase) were balanced by reduced corporate lending (-45% YoY). Despite higher funding costs and a focus on salaried home loans, their profit margins remained stable.
II. The company's asset quality remained steady, with Gross Non-Performing Assets (GNPA) at 3.8% and Net Non-Performing Assets (NNPA) at 2.6% for both retail and corporate portfolios.
III. Overall, we maintain a positive view (ADD) on the company with a revised Target Price (TP) of INR 700, based on relative intrinsic valuation (RI), which implies 1.2 times the March 2025 adjusted book value per share.

Key Risk:
I. Though the company is reporting repeated profits, it is not paying out dividend
II. Low interest coverage ratio.
Financial Performance:
I. Company's median sales growth is 36.3% of last 10 years
II. PNB Housing Finance is working on building a diverse loan book by investing in distribution networks, especially in the affordable housing sector. However, the recent equity raise might impact their near-term Return on Equity (RoE).

Outlook:
Company is expected to give good quarter result compare to earlier.

Financial Summary:

PNB Housing Finance Share Price