Coforge has won a mega tech deal, but can Sabre service the contract?

Subscribe to enjoy similar stories. Coforge Ltd’s recent announcement of its largest-ever contract with Sabre Corp brought cheers to shareholders, but at least three analysts have raised concerns about the Texas-based travel technology company's ability to see through the deal and make timely payments due to its weak financial health. 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.