Private Eyes & Arms For Protection

Mounting terror threats within and outside the country have led to an overall sense of insecurity in India. Ironically, the situation has also opened up a plethora of opportunities for private companies offering security services in India. The reason is a mathematical riddle.

The Indian population currently stands at over 1.2 billion people, while the estimated number of armed police personnel employed with the state governments is around 1.5 million. The ratio is a pointer to the fact that all components of the security system across the country could not possibly be kept on high alert by the government alone. The consequent and rapid growth of the private security services market has witnessed the emergence of several home-grown security services companies and entry of a host of multinational biggies over the past few years.

Currently, around six million to seven million private security guards are employed by thousands of private security agencies. Those with a decent monthly pay of Rs 12,000 and above, are employed by the top five private agencies. The rest work with very small and largely unregulated agencies spread across India. In value terms, the size of the private security business is pegged at Rs 40,000 crore, which is projected to double by 2020. Data in a Grant Thornton-Ficci report suggests that the force could even add on another five million to seven million private guards along the way.

Nearly 90 per cent of the revenue is currently generated from man guarding services, according to Ashok Bajpai, managing director at G4S India, one of the largest players in the market with a foreign parentage. “The private security sector has assumed a more critical role in recent years,” says he. Private security refers to services in the spheres of man guarding, electronic security and cash management, among others. Private companies in this segment are turning increasingly busy and have significant expansion plans to cater for India’s growth story.

“With the exponential growth of the Indian economy over the last two decades, the need for security solutions offices, IT parks and other public infrastructures such as airports, Metro stations, shopping malls and public utilities have grown manifold. In order to meet this demand, the industry has significantly scaled up,” says Bajpai. Rituraj Sinha, Group COO at Delhi-based SIS Group Enterprises that is riding on a turnover of over Rs 3,900 crore, echoes the same sentiments.

“While it is the change in lifestyle over the past few years that is leading the growth in this sector, it is also the growing terror threats across the world which is prompting private companies to enhance security services,” says Sinha.

In India, the company has a joint venture with Spanish security major Prosegur (for the cash logistics segment), Servicmaster (for mechanised cleaning) and pest management services company, Terminix.

It has bought a controlling stake in Dusters Total Solutions, a facility management company, for a reported enterprise value of Rs 175 crore.

Growth Prospects
Going forward, the growth in the private security segment is expected to come from business-to-government (B2G) and business-to-consumers (B2C) segments, say experts. “The new civil aviation policy talks about outsourcing the perimeter security of upcoming airports (unused and Greenfield) to private security agencies. Deploying a full-fledged CISF unit on smaller airports where there won’t be more than two or three flights in a day will be extremely expensive. Similarly, central PSUs, the Railways and government installations offer a huge potential for the growth of private agencies,” says Sinha.

Meanwhile, the Union ministry of railways has rolled out a programme for modernising 400 railway stations. A senior official, speaking on condition of anonymity, says that an option being considered in the modernization programme, was deploying cost effective private agencies for man guarding and electronic surveillance. It goes without saying that effectively, deploying the 65,000 strong Railway Protection Force (RPF) across the more than 7,000 railway stations and over 15,000 passenger and express trains and 7,000-plus freight trains — would prove an impossible task.

“The cost of a single RPF personal on a per-month basis works out to around Rs 90,000 whereas the cost of a single private guard will be 10 -15 per cent of the RPF cost. Using private agencies for railway stations and other services is an option under active consideration of the government,” says the Railway official, adding that work was currently under progress.

Besides man guarding, which is the largest segment in security services, growth is also expected in the electronic security systems market that includes security solutions through CCTV, alarm systems, access control systems and other electronic equipment and technology. “The electronic security services market is driven by a sustained threat perception and investments in both public and private infrastructures. Security threat perception will contribute to increased demand for security and surveillance systems such as access turnstiles and CCTVs,” says Bajpai.

The electronic security services market, now estimated to be in the region of Rs 35 billion to Rs 40 billion, is expected to double over the next four years. The cash services segment too is gradually evolving into a key service offering in the private security services industry. Key offerings like ATM replenishment, cash-in-transit and cash pickup and delivery, were also throwing up more business for the private agencies, reveals Sinha.

Raining Jobs
The massive expansion in the sector is expected to create millions of jobs over the next few years, even if they are only in the semi-skilled segment. The Grant Thornton-Ficci study says the private security industry was expected to generate around 50 lakh additional jobs by 2020. Currently, around 70 lakh people are employed in this sector. “The private security services industry is one of the largest employers in India and is growing,” says Ramesh Iyer, vice chairman and CEO (India), Tops Group. “This is particularly good news for a country like India where the requirement of semi-skilled executives is also significant,” he adds.

Since the sector is largely unorganised, its key challenge is the remuneration structure. A guard typically gets about Rs 40 to Rs 50 per hour, or less than a dollar. In Australia, the US, the UK and other European countries, the hourly billing ranges from $20 to $40. “The labour ministry is working on minimum wages for the private security agencies, which will be mandatory for every registered agency going forward,” says Sinha of SIS.

Some good news awaits the sector now, however. The Union ministry of labour and employment is expected to soon announce categorisation of security guards as ‘skilled’ workers and armed security guards and security supervisors as ‘highly skilled’ workers, entitling them to receive a minimum wage of Rs 15,000 per month and Rs 25,000 per month, respectively. This was recently disclosed by Bandaru Dattatreya, minister of state (independent charge) for labour and employment. The government will also provide a social security cover to over 2.5 crore family members of the five million people engaged as security guards.

Foreign Capital
In June, the Union government increased the foreign holding cap in security agencies to 74 per cent without making suitable changes in the law governing the sector, namely the Private Security Agencies (Regulation) Act, 2005. The law clearly stipulates that the majority stake in such companies should be held by an Indian. The Department of Industrial Policy and Promotion (DIPP) recently permitted foreign direct investment (FDI) of up to 49 per cent through the automatic route and up to 74 per cent through the approval route in the sector. It had earlier restricted FDI to 49 per cent in the sector through the government approval route.

Even before appropriate steps could be worked out to enforce the hiked FDI cap, the decision has divided the industry. The Central Association of Private Security Industry (CAPSI) has expressed concern over the enhanced FDI limit in a representation to the government. “While one appreciates the need for foreign direct investment in a capital intensive sector like infrastructure, it is difficult to understand the rationale for FDI in the private security sector as this manpower intensive sector has thus far attracted less than a few millions worth of foreign investment,” says CAPSI president, Kunwar Vikram Singh.

Increasing FDI can also prove a threat to national security as these agencies directly employ over 50 lakh workers, the majority being ex-servicemen, para-military and police forces, he adds. But G4S India is happy with the decision. “It will allow global firms like ours to bring global best practices and technology to India,” says Bajpai, adding, “The private security sector has assumed a more critical role in recent years.”

Rising Investor Interest
Sensing the growing business opportunity in the sector, a host of private equity giants — both global and domestic — are betting big on private security companies. The big names eyeing this sector include ICICI Venture, Blackstone, DE Shaw and CX Partners. Some successful exits too are enticing new investors to foray into security services. Increased merger and acquisition activity, particularly the entry of a host of global firms and subsequent tie-ups with home-grown private security companies, is tempting private equity firms to prowl for investments in the sector.

All in all, the private security business seems to be a sunrise sector that is likely to blaze ahead in step with the India growth story.

ashish.sinha@businessworld.in; paramita@businessworld.in