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Markets settled flat after a highly volatile session, as positive global cues battled against sharp losses owing to weakened sentiment after the RBI kept rates steady. The Nifty closed 7 points higher at 5,280 and the Sensex shed 61 points to close at 18,091.

Harit Shah of Angel Broking is positive on Tanla Solutions, 3i Infotech and Infotech Enterprises.

Here’s how Harit Shah views the stocks on board:

On 3i Infotech:

This company is a well diversified midcap software company. They have managed to differentiate themselves quite well. They are mainly a product-based company and are also into the services segment.

An interesting fact is that they are present in a strong way in India. They have 35% share of their revenues coming from the Indian market, which is poised for some pretty strong growth, going forward. So, that is one of the positive factors that I see about the company.

Also their product base is pretty large. They have used the acquisition route to grow in the last few years and have grown very successfully. They have raised a lot of money through FCCBs for that purpose and have managed to get some accretion to the EPS, on account of these acquisitions. They have integrated them without any problems.

So, to that extent, they have been able to grow without compromising on profitability. So, in that sense, it is an overall good business model and is coming at a pretty reasonable valuation. So, these factors make it one of our top picks in the midcap IT space right now.

On Tanla Solutions:

Tanla is another interesting story. It is basically a play on the mobile value and its services. Globally, if you look at how the telecom sector is shaping up, markets like UK are well developed. Subscriber growth is negligible. So, you have more revenues coming from value-added services like SMS, ring tone downloads and mobile Internet. These services are obviously picking up at a very fast rate. So, Tanla is an aggregator.

They provide an interface for operators and content developers, to grow these kinds of services. So, they operate as a platform and are also expanding in markets apart from the UK, in Singapore and US where there is also a lot of scope of growth in these markets.

The business model is very scalable. They have about 50% EBIDTA margins and they can sustain this, going forward. Their business is coming at a valuation of 12 times in FY10 earnings. So, given the kind of strong return ratio and growth that is it expected in this business, it is a pretty attractive valuation. So, the stock can deliver at least about 20% upside from current levels.

On Infotech Enterprises:

Infotech Enterprises is also another midcap focused software company. They are focused mainly on the outsourcing space. This segment is expected to grow at about USD 40 billion, over the next few years, according to a survey by NASCOM. So, they are well placed to exploit this growth.

They also have some good marquee clients like Pratt and Whitney. They are the largest makers of aircraft engines in the world. So, that is a very positive factor. In fact, Pratt and Whitney also have an investment in Infotech Enterprises, which is another positive factor for the company.

Going forward, they are pretty well placed to exploit this growth. Right now, we have a hold recommendation on the stock. Our target is about Rs 270 from current levels.

Disclosure:
I personally hold 3i Infotech and Tanla Solutions. We also have a recommendation to our clients for all these three stocks.

Source: Moneycontrol.com