>INDIA STRATEGY: Mid-cap List: Adding DISH TV and INFOTECH ENTERPRISES

Why are we adding Dish TV to our mid-cap list?
• Amongst the biggest gainers from ongoing digitization in India - We expect DTIL to grow its gross subscriber base at a healthy CAGR of 18.9% from F2012-14 to reach 19.8mn by F2014. Also, if the government were to diligently enforce the digitization rollout, there could be a potential upside to our growth assumptions.


• We expect the valuation to see upside based on improving ARPU and cost trends, which will drive margin expansion for DTIL.


– Competitive pressures have led to tepid ARPU growth over the last six months for DTIL. We expect other DTH players to shift their focus toward profitability at the same time we expect greater consumer willingness to pay for digital content. This is expected to drive ARPU growth. We expect ARPU CAGR of 12% over F2012-14.


– We expect DTIL's cost structure to be rationalized as it is spread over an increasing subscriber base. Programming cost as a % of revenue is expected to drop to 30% in F2014 from 35% in F2011 and 32% in F2012e.


– We expect an EBITDA CAGR of 45% from F2012-14e.
• Currently, the stock trades at an EV/EBITDA of 8.3x based on our F2013 estimates.


Why are we adding Infotech Enterprise to our mid-cap list?
• Risk-reward remains favorable: Infotech stock is currently trading at 8.6x F2013e EPS, ~20% discount to its 8-10 year historical average. This may reflect concerns that USD revenue growth would slow down significantly to 14-15% yoy in F2013e (vs. 25% in F2012e) based on consensus estimates. We expect Infotech to continue to deliver strong USD revenue growth of ~19% in F2013, helped by stable 2012 budgets for its clients, expectations of price increases in the current environment, and ramp up of new accounts. Overall, we expect Infotech to grow revenues and earnings at a CAGR of 20% over F2012-14.



Infotech stock has risen ~36% YTD (vs. the 15% gain in the Sensex). However, over the last year, the stock is still underperforming Sensex and its other mid-cap peers. The stock is up 17% (vs. ~8% for the Sensex) since announcing its F3Q12 results (January 18, 2012) as concerns about margins eased after it reported stronger than- expected margin improvement. We believe Infotech stock has further upside potential and should continue to outperform once
revenue growth concerns ease for the company over the coming quarters.


• Improved volume growth, robust hiring in 4Q (strongest in the last few quarters) and a stable hiring outlook for F2013 are the key catalysts that should help ease concerns on revenue growth, in our view.


Focus List and Sector Model Portfolio Performance
• Year to date, our sector model portfolio has outperformed the MSCI India index by 13bp and our Focus List has outperformed the BSE Sensex by 375bp. Our mid-cap list has outperformed BSE Midcap by 104bp.


• We are not making changes to our sector model portfolio. We are Overweight Consumer Discretionary and Technology and Underweight Financials, Industrials, Materials and Telecoms. We are Neutral on Consumer Staples, Energy, Healthcare and Utilities.



To read the full report: INDIA STRATEGY
RISH TRADER