Right by your side

The private security industry is buzzing with activity and heightened investor interest

Soumik Kar

So, you believe the police is in charge of law and order in India? Think again. For every cop, there are nearly six private security guards looking out for you as you work in your offices, shop in malls, eat in restaurants or simply stay at home. It is private security guards that ride with cash-filled vans to ATMs or to banks after collection from your neighbourhood mall. They guard jewellery stores, offices and vast manufacturing complexes such as Essar’s Oil refinery in Gujarat or the BPO operations of TCS in Bengaluru. During 26/11, private security guards even worked with the National Security Guard on save-and-rescue missions inside Mumbai’s Taj Mahal Hotel.

It doesn’t come as a surprise then that the private security industry in India is poised for big-time growth. An estimated ₹22,000 crore business, it’s reportedly growing at 15-20% annually and Assocham expects it to cross ₹40,000 crore by 2015. That’s a more conservative estimate than the one by Frost & Sullivan, which expects security spending — including homeland security and equipment bought by government agencies — to cross ₹54,000 crore by 2016. That sounds plausible, considering the global private security industry is pegged at $200 billion, and growing at 14% every year. The US market accounts for 42% of that, followed by Western Europe at 26% and Asia Pacific at 12-13%. By 2015, India will have at least 4% share, making it among the top 10 markets for security. 

Most agree that the industry has become more visible over the past decade — the result of terrorist attacks across India, the demand for security in new infrastructure projects such as airports, roads, ATMs and telecom towers and modern retail, hospitality and IT and ITeS services. “Recent incidents have brought to the fore the grave gaps that exist in our security set-up, and the need for more participation from the private security industry,” avers Neelu Khatri, head of aerospace, defence and security at KPMG India. And with the industry straddling several inflection points — doubling growth, consolidation and increased investor interest — the next few years promise to be very interesting for private security players.  

Forward march

The bulk of the private security industry (about 93%) comprises services such as manned guarding, electronic security-related services such as alarm monitoring, CCTVs, fire alarms systems and cash-in-transit services. The balance is accounted by equipment manufacturers such as Honeywell, Bosch and Siemens and specialised services such as detective investigation, employee verification and personal security (see: Strength in numbers). 

Strength in numbers

The services part of the industry is largely unorganised and highly fragmented. There are close to 15,000 registered agencies in the country and many more unregistered ones that seem to spring up at the drop of a hat. Organised players, which account for about 25% of the sector, include a mix of domestic and international names such as G4S, which leads with 160,000 employees, Topsgrup (85,000), SIS (60,000), CMS Info Systems (25,000), ISS India (47,000) and Securitas India (20,000). In all, the sector employs an estimated 6 million people, mostly rural migrants aged between 19 and 35 years. 

Helping the industry become more structured is the Private Security Agency Regulation Act (PSARA) that came into force in 2005. The Act requires all agencies to be registered with respective controlling authorities in each state. For instance, in Gurgaon the police issues licenses, monitors private security and lays out guidelines for appointment and training of guards. “Customers, too, are increasingly becoming more aware of brands and want certain standards to be followed. They do not want to take on the headache of following statutory obligations that come with hiring private guards,” says Rituraj Sinha, promoter of Delhi-based SIS India, an 11-year-old firm with a revenue of ₹2,500-crore. “Working with credible organisations also means they do not have to deal with manpower-related issues,” agrees Neil Prasad, regional managing director, G4S South Asia, the industry leader in man-guarding services. The biggest positive of a more organised industry is the growing interest among private equity players and foreign security firms, who are lining up for a share of the action. 

Taking Guard

Private equity firms already own many private security businesses globally. While Blackstone has a stake in US-based Allied Barton, Goldman along with EQT Partners, owns the world’s largest private security firm, Denmark’s International Security Systems (ISS); and GTCR Golden Rauner acquired Protection One in 2010 for $828 million. They have been steadily breaking into the Indian market since the mid 2000s, with the deal flow especially picking up in 2007-2011 period. 

Some deals include the 2008 acquisition by Blackstone (along with former Microsoft India head Rajiv Kaul) of a majority stake in CMS group. CMS Info Systems, its cash management firm, in turn, acquired Securitrans India from APS Group in 2011 for ₹250 crore. Goldman Sachs-backed ISS, too, acquired a 49% stake in SDB Cisco in August 2010 for ₹150 crore. In all these cases, the foreign partner’s share is capped at 49% due to government restrictions. 

Supply of physical guards still brings in bulk of the revenue

Indian PE firms have also been active in the space during the past few years. ICICI Venture invested ₹107 crore in Topsgrup in 2007. Topsgrup also has investments from Rakesh Jhunjhunwala’s Rare Enterprises and Everstone Capital. DE Shaw invested ₹50 crore in SIS for a 14% stake in 2008; it exited last year and now CX Partners is slated to invest ₹200 crore in the business. “The industry presents a lucrative opportunity and is in its early stage of consolidation. We have backed SIS as it shows a strong growth track record and we believe in the firm’s management,” says Ajay Relan, founder, CX Partners.  

In the past seven years, there’s also been a wave of M&A activity in the security space. In December 2007, Sweden’s Securitas acquired a 49% stake in Delhi-based Walson Security Services for ₹67 crore. The following year, Topsgrup acquired Bengaluru’s Guardwell Detective Services for ₹20 crore. Some companies like Topsgrup and SIS have also acquired companies abroad. While SIS acquired Chubbs Security in Australia in 2008, Topsgrup completed the acquisition of UK-based Shield Security in 2012. Recently, the FIPB approved a proposal from UK-based OCS Group to acquire a stake in Central Investigation and Security Services, a Mumbai-based firm. 

The deal flow is likely to pick up speed this year. G4S has declared it is looking for acquisitions in India and West Asia. It bought DLF’s TerraForce in 2009 for an unknown amount. “We are open to acquiring companies if they offer value for money,” says G4S’s Prasad. Ramesh Iyer, CEO of the ₹1,200-crore Topsgrup, is scouting for companies in India as is SIS’s Sinha. Others like Checkmate Securities also have FIPB approval for raising ₹66 crore in foreign equity. As per news reports, the company is in talks with Standard Chartered PE for selling a 49% stake.  

“I have the capital and I’m always looking for acquisitions,” says Rajiv Kaul, executive vice-chairman and chief executive of CMS Info Systems. The ₹1,100-crore firm is a market leader in the cash-in-transit market and services around 32,000 ATMs across India. Kaul agrees the market is fragmented, but believes in the next five-six years, it will stabilise with three or four major players. “Scale is the name of the game in cash-in-transit services. If you don’t have volumes you cannot make money,” he points out.

Since most security firms tend to be localised operations, acquisitions are being done for just those reasons — gaining scale and geographical reach. With the Securitrans deal, CMS’ share of the cash management services market grew from 25% to the current 58%. Topsgrup’s buyout of GuardWell, which had 5,000 employees in South India, helped it become the No. 2 player in the southern market after ISS.  

Eye in the sky

As security needs and expectations increase, plain vanilla man-guarding is giving way to technology-enabled security services. In India, man-guarding accounts for 60% of the market but that’s not the case in developed markets where the share is 46%. Now, security practices aided by electronic devices are gaining ground here as well — including sophisticated technologies such as biometric readers for fingerprints, voice and even iris scans. “Many of our clients now want CCTVs and control rooms to monitor alarms,” says Sinha. “The idea in India, though, is not to replace guards but avoid human errors,” he adds. 

The biggest hurdle in the adoption of such technology has been price — the equipment is imported and the price tag reflects the additional cost. Now, local firms are stepping up to offer home-grown security solutions. Firms like Adit Security Systems, Zicom, Axis Technologies and Enkay Technologies offers equipment like CCTV surveillance, access and entrance control systems, biometric and whole host of fire detection and perimeter protection alarms. On average, these products are 30-40% cheaper than imported products. 

“More and more people are opening up to adopting technologies such as fingerprint door-locks, video door-phones and alarms in both corporate and residential segments,” says Pramod Rao, MD, Zicom, which has been operating in the electronic security equipment field since 1994. “These products are picking up in even residential sector as costs have come down over time. Moreover, people are beginning to view security as a key need and priority.” It becomes easier to adopt technology when there’s a direct and visible impact on the bottomline. When it started the cash-in-transit business, CMS invested an undisclosed sum in setting up an IT network that gave it real-time information on money collected. Collectors were also given handheld devices to enter data in real time, minimising risk of fraud. “Our IT systems enable us to raise red flags quickly and avoid losses for our clients and ourselves,” says Kaul. 

Technology is only part of the story. Providing better trained staff and offering value-added services is fast becoming a differentiator. Topsgrup worked with a telecom sector client to set up a guard patrol-based security approach for its cell towers, rather than posting one guard at each tower. “We trained these guards to perform basic functions at the towers like replacing batteries. This helped the client save 40-50% of security cost,” says Iyer. 

In any case, regular training is mandated by the PSARA, which calls for a minimum 160 hours of training at the entry level. Of this, 100 hours are in the classroom, learning about metal detectors, CCTV monitoring and unarmed combat, while the rest is on-the-job training. Bigger firms such as Topsgrup, SIS and G4S already have training facilities. SIS has 80 branches served by four regional training academies that churn out 15,000 guards a year. 

There’s increased emphasis on the quality of training too. Delhi-based AP Securitas has tied up with Israel’s ARES Group, which is run by former secret service and military officers and promises psychological profiling, polygraphy and ‘reliability analysis’ to screen candidates. Many security training and education institutes have sprung up to offer diplomas and courses in security management. India Skills (a joint venture between Manipal Education and UK-based City & Guilds) offers a diploma after 194 hours of training to equip guards with abilities like handling emergencies and operating disaster and security equipment. The International Institute of Security and Safety Management offers certificate courses in subjects like CCTV and visitor monitoring, hotel security, baggage scan and evacuation and managing hostage situations. “Governments in states like Jharkhand have become interested in setting up such centres because of the employment potential for youth from rural areas,” says Vikram Singh, chairman, Central Association of Private Security Industry. Better training will ensure better salaries and less exploitation, he feels. Currently, an entry level security guard makes ₹7,000 a month, while those with English fluency or experience earn over ₹9,000 and those trained in using firearms earn up to ₹15,000 per month.

Obstacle course

But if there are opportunities across the spectrum, there are also many challenges. The biggest, of course, relates to the quality of talent. As Arjun Walia, promoter of Securitas India, says, “You are only as good as your security guard. Well-trained guards are a company’s best asset.” Rural areas are the typical catchment area but few are employable, says Sinha. “Lack of employable guards is the biggest constraint for the sector.” 

Offense is the best defense

Home-grown as well as international players are active hunters in the
race to achieve scale in the fast growing Indian market

The uneven adoption of PSARA, which calls for mandatory training of guards, is also a hurdle. So far, only 10 states have passed the Act; in others, an overlap of regulators adds to the complication. For example, Maharashtra has a Security Guards Board but licenses are granted by the PSARA controlling authority and joint commissioner of police. “One has to constantly shuttle between the two authorities,” complains Iyer. In states that do not follow the minimum guidelines for hiring guards, private security agencies often get away with malpractices like not paying provident fund, hiring people with questionable integrity and deploying them without training. 

Another concern relates to restrictions on arms carried by guards, especially for those engaged in the security of high-risk establishments. In November 2012, private security guards rode with cash vans to 103,000 ATMs across India and many more guarded bank ATMs, jewellery shops and fuel stations. The home ministry allows arms licenses to ex-servicemen to get employment as guards with banks and private establishments but private security agencies are not allowed to get an arms license for their security guards. “We are slated to get [business for] another 100,000 ATMs by 2014 and that involves moving a lot of cash. It is only fair that arms be allowed,” says Kaul. A Ficci study reports that the industry currently employs 30,000-50,000 gunmen. Since agencies are not permitted arms licences, they hire ‘retainers’ — individuals who hold such permits. “At times, the industry is forced to hire persons with questionable credentials just because they hold an arms licence. Agencies should be allowed to procure and use retainers along the same lines as banks,” argues Sinha. 

The good news for the industry is that these issues hardly come in the way of its growth. With more, industrial clusters, retail and hospitality developments, increase in terrorism and rising urban crime rates, the need for private security will only go up. As Iyer puts it, “India is a theft-prone society.” That is a worrying conclusion but hopefully, we are all in safe hands.