The country’s seventh-largest software services provider announced a 13-year contract with Sabre late last Tuesday, valued at $1.56 billion. This translates into $120 million revenue a year for Coforge. This is the largest deal signed by any mid-cap software services provider in the country.
While investors’ enthusiasm resulted in Coforge’s stock jumping 8% on Wednesday to close at ₹7,811, doubts persist on Sabre’s ability to service the contract, primarily due to its poor financial health, which was ravaged by the covid-19 pandemic and has yet to recover.
“Sabre is yet to recover fully from the hit it suffered during the pandemic,” said Kotak Institutional Equities analysts Kawaljeet Saluja, Sathishkumar S., and Vamshi Krishna, in a note dated 5 March. “The deal has an additional risk arising from Sabre’s financial positioning,” said the Kotak analysts.
A second analyst echoed this concern.
“Sabre’s financial situation is obviously a cause for concern to us. The idea for Sabre is to save costs but there is no certainty on the ways in which they will service the deal,” said a Mumbai-based analyst working at a domestic brokerage, declining to be identified.
“Sabre does not publicly discuss commercial agreements at this level of granularity,” a company spokesperson said in response to Mint’s emailed queries. “As you can see in our recent 2024 financial results, the company has made significant progress in both strengthening our financial position and also achieving our publicly communicated financial objectives. During our February 20, 2025 earnings call, we provided guidance that we expect to generate greater than $200 million of free cash flow in 2025, while also paying down our 2025 debt maturities as they come due,” the spokesperson added.
Coforge, in response to Mint’s email seeking comments, said: “All other details are confidential in nature and cannot be shared due to confidentiality between both the parties.”
Sabre’s financial woes, underperformance
Sabre has been reporting net losses since 2020. However, its net loss fell sharply to $279 million in 2024, from $542 million in 2023. The company has made losses in five of the 11 years since it went public.
Sabre was founded in 1960 in a collaboration between American Airlines Group Inc. (AAL) and International Business Machines Corporation (IBM) to create the world’s first computerised airline reservation system. It went public in April 2014 when its shares got listed on the Nasdaq.
Sabre’s revenue rose 4% to $3 billion in 2024. It has two divisions – Travel Solutions and Hospitality Solutions.
Travel Solutions provides software products to hotels, airlines and travel agents to book their travel, and makes up 91%, or $2.74 billion of the company’s overall business. Hospitality Solutions, which provides software products to hotels that manage their pricing and reservations, makes up the remaining 9%, or $327 million, of the business.
Worryingly for Sabre, its shares have not performed up to the expectations. Sabre priced its IPO at $16 per share. It currently trades 76% lower at $3.89 apiece.
A bigger concern for the travel technology company is its pile of debt. Sabre’s debt at the end of last year totalled $5.1 billion, up 55% from 2019. Even its operations have taken a hit as the company has been bleeding money since 2020, with an approximate cash burn of $1.7 billion.
The company relies highly on Global Distribution System, a software which provides data to travel agents and travel service providers such as airlines and hotels. Such softwares are tough to scale and modify, which has led to Sabre’s high debt pile.
Sabre’s headcount has also seen a steady decline. It ended last year with 6,253 employees, down from 9,250 employees four years ago. The company attributed this to a cost reduction plan initiated in 2023.
Cost-cutting measures
This cost reduction plan came with a change in leadership. Kurt Ekert, who joined as Sabre’s president in January 2022, assumed the role of chief executive a year later, replacing Sean Menke, who was in the company for almost nine years.
Ekert’s first order of business was to introduce a cost reduction plan that would help the company save $200 million annually, part of which was the reduction of workforce.
“As a new CEO, it pains me to take these steps, especially so early in my time in the role. I do not take this decision lightly, especially given the immense respect that I have for all of my Sabre colleagues around the world,” said Ekert, as part of his prepared remarks following the company’s announcement of its first quarter-results on 4 May 2023.
“However, I am confident these actions will better position us for the future, and put us on a direct path to achieving our financial and strategic targets,” said Ekert.
A third analyst said such deals would help Sabre pull itself out of a tough financial condition.
“This deal is a result of Sabre wanting to optimise costs. A lot of these deals are constructed out of the pressure of reducing costs,” said Pramod Gubbi, co-founder of Marcellus Investment Managers, a Mumbai-based investment management firm.
“If a financially ailing company can outsource non-core business, a software services vendor will provide the solutions at much lower costs than what the parent company would otherwise spend on,” added Gubbi.
Still, a fourth analyst has brushed off concerns regarding Sabre’s financial health.
“Some concerns on Sabre’s financial health and ability to pay for this new collaboration are overblown, in our view, as it forms part of a cost-saving initiative that Sabre is undergoing for the past two years,” said IIFL Capital analysts Rishi Jhunjhunwala, Ankur Pant, Kenil Doshi, and Vishesh Jain, in a note dated 5 March.
“Despite high net debt, there are no material repayments for two years and they have guided for $100 million cost savings and $200 million FCF (free cash flow) in 2025,” added the IIFL analysts.
Coforge’s prospects
As part of the deal with Sabre, Coforge, which ended last year with $1.12 billion in revenue, is expected to handle the software product delivery for Sabre and will also execute artificial intelligence-led tasks for the travel technology company.
Coforge got almost a fifth, or $201 million, of its FY24 revenue from clients in the travel, transportation, and hospitality sector. Its revenue from the sector is expected to increase by 60% with the latest deal.
The deal comes at a time when even the country’s largest software services companies, including Infosys Ltd, HCL Technologies Ltd, Wipro Ltd, and Tech Mahindra Ltd, have been struggling to secure big-ticket deals.
Mumbai-based Tata Consultancy Services Ltd was the last of the country’s top five software service providers to bag a mega deal last year, when it signed a 15-year deal worth $2.5 billion with Aviva, a British insurance company.
Kotak analysts have maintained that Coforge would need to ensure timely payments from Sabre.
“Coforge would need to ensure efficient receivables collection, with stricter payment timelines to insulate from potential cash flow risks,” said the Kotak analysts.
