Coforge Ltd. has secured a $1.56 billion, 13-year contract with Sabre Corp., marking the largest deal for a mid-cap software provider in India. Despite a surge in Coforge’s stock, analysts express concerns about Sabre’s ability to meet its obligations due to ongoing financial difficulties. SABRE has experienced consistent net losses since 2020 and substantial debt mounting. Looking ahead, analysts are divided on the deal’s long-term viability and its impact on Coforge’s operations.
Coforge Ltd. has secured a substantial contract valued at $1.56 billion with Sabre Corp, marking a significant milestone as the largest deal achieved by any mid-cap software services provider in India. This 13-year agreement is expected to generate approximately $120 million in annual revenue for Coforge, which has led to an enthusiastic response from shareholders, evidenced by an 8% rise in its stock price following the announcement.
However, concerns linger regarding Sabre’s ability to meet its obligations under this contract. Analysts from Kotak Institutional Equities have noted that due to Sabre’s weakened financial position stemming from the COVID-19 pandemic, there are uncertainties regarding its capability to honor timely payments. The analysts cautioned, “Sabre is yet to recover fully from the hit it suffered during the pandemic,” and they flagged the risk posed by Sabre’s financial situation.
Adding to these concerns, a Mumbai-based analyst indicated uncertainty about how Sabre intends to manage the costs associated with servicing the deal, saying, “The idea for Sabre is to save costs but there is no certainty on the ways in which they will service the deal.” Meanwhile, a spokesperson for Sabre highlighted progress in their financial health, noting expectations of generating over $200 million in free cash flow by 2025.
Sabre’s financial trajectory has been troubling; the company has reported net losses since 2020, although its loss decreased from $542 million in 2023 to $279 million by 2024. Notably, Sabre’s revenue grew by 4% to reach $3 billion, with its primary division, Travel Solutions, accounting for 91% of revenues. Despite this, the company’s stock price has plummeted since its IPO in 2014, now trading 76% lower than its initial launch price.
Additionally, Sabre’s debt has escalated to $5.1 billion, a 55% increase since 2019, and its workforce has diminished significantly as part of a cost-cutting initiative led by new CEO Kurt Ekert. He aims to implement a reduction plan to save $200 million annually, even as he acknowledges the difficulty of workforce reductions, stating, “I do not take this decision lightly.”
Despite the financial challenges, some analysts believe that the deal with Coforge could aid Sabre in addressing its financial difficulties. An analyst from Marcellus Investment Managers noted that outsourcing non-core functions to a software service provider can yield significant cost savings for financially struggling companies. Conversely, others view optimism about Sabre’s financial health as overstated, given its ongoing cost-saving measures and guidance for future cash flow.
For Coforge, the new contract with Sabre is expected to bolster its revenue from the travel sector, which constituted a significant portion of its earnings in the previous fiscal year. As Coforge aims to manage the software delivery and other technology services for Sabre, it is imperative that the company effectively handles receivables to mitigate potential cash flow risks associated with Sabre’s financial health.
In conclusion, while Coforge’s acquisition of a prominent contract with Sabre presents substantial revenue opportunities, uncertainties about Sabre’s financial stability raise critical questions regarding the deal’s sustainability and payment reliability. Analysts remain divided on the implications of Sabre’s financial challenges, suggesting both caution and potential benefit for Coforge. Therefore, Coforge must prioritize effective receivables management to navigate the complexities of this partnership successfully.
Original Source: www.livemint.com
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