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A force to reckon with

A force to reckon with

With a combined strength of 5.5 million, private security is already four times the size of the country's police force.

In December 2007, almost a year after acquiring 997 acres in Singur in West Bengal for its Nano plant, Tata Motors had to beef up the security around the land, given the mounting political opposition to the project. A few days before starting the construction, Girish Wagh, head of the small-car project at Tata Motors, called up Rituraj Sinha, COO of Delhi-based private security firm Security and Intelligence Services India (SIS) and asked for a 130-strong security contingent. SIS guards were already providing security to four other Tata Motors plants across India. That was just the beginning as protests snowballed. "I used to discuss security needs two or three times a week with various key executives at Tata Motors. As the protests started turning violent, the number of guards went up to over 600 in a matter of seven months," says Sinha.

SIS was soon entrusted with providing end-to-end security solutions to the Tatas at Singur -from perimeter fencing beefed up with electronics and thermal sensor cameras to CCTVS inside the factory premises. "The police strength was limited and their role was a bit obscure because of political issues," says Sinha.

The Tata experience illustrates the complex security challenges faced by businesses. Private security agencies are now much sought-after as companies expand rapidly in a fast-growing economy. "Earlier, only big companies could afford private guards. The fear of terrorist attacks, rising industrial espionage and thriving criminal activities has prompted even small and medium-size companies to go for private security," explains Ramesh Iyer, Managing Director of Mumbai-based Topsgrup.

This explains why the industry is estimated to have almost trebled in the last five years alone and its value is now pegged at Rs 14,350 crore. With a combined strength of 5.5 million personnel, private security is already four times the size of the country's police force (around 1.4 million) and more than five times the size of central paramilitary forces (1 million). "Homeland security is irreplaceable.

But today they have a more critical role to play. We have relieved police of the routine security and other non-critical tasks," says Nitin Deveshwar, Chairman and Managing Director, Ex-Servicemen's Multipurpose Services India (ESMS).

Security on call

  • There are 30 large and mid-size firms across the country offering a wide array of services
  • With 5.5 million personnel in its ranks, the industry is the second biggest employer in the country
  • The industry has almost trebled in the last five years in value to over Rs 14,000 crore
  • The unorganised sector still accounts for almost 40 per cent of the market
  • 'Man guarding' remains the core business; manufacturing sector accounts for bulk of the demand
Many big companies would prefer the paramilitary Central Industrial Security Force or CISF but it is hugely understaffed and unable to meet the policing demand. In February 2008, Parliament passed the Central Industrial Security Force (Amendment) Bill 2008 paving the way for the body to provide security to private industrial establishments on cost re-imbursement basis. But so far, while over 100 companies have asked for CISF protection only one (Infosys Technologies) has been cleared by the ministry. Already, there are around 30 large regional private security players across the country offering a wide array of services. Man guarding remains the bread-andbutter, contributing 80-90 per cent to the business. But the fastest growing vertical is executive protection, which includes security for bureaucrats, politicians, celebrities, diplomats and company executives. "Executive protection requires skills of the NSG, defence and police personnel. A lot of retired personnel are put on the job," says Vikram Singh, Chairman of Central Association of Private Security Industry.

"Executive protection is a highgrowth, high-margin business for us. The guarding segment generates 10-12 per cent margins whereas executive protection fetches a margin of over 20 per cent," says Iyer, who provided security for celebrities such as Brad Pitt, Angelina Jolie, Michael Jackson and Cindy Crawford when they visited India.

Private security is rapidly expanding into other segments as well. In the last few years, almost every player has diversified into facility management, cash services and electronic security. The electronics segment includes installation of video surveillance, fire and burglar alarm systems and Iyer thinks that this segment will see tremendous demand. "The industry has to reduce its dependence on manual guarding," he says. Iyer's Topsgrup has signed several big-ticket deals recently, including a Rs 1 crore contract in July with Bharti Wal-Mart to set up electronic security systems across six sites.

Cash management is another rapidly growing segment that includes secured transfer of cash and valuables, ATM replenishment and multi-point cash collection. "We manage the cash cycle of financial institution clients which helps them streamline operations and reduce costs," says Rupal Sinha, Regional Managing Director of Group4 Securitas (G4S), the Indian arm of the eponymous global security firm. Cash management services are no longer used by the financial services sector alone. "There is an unprecedented demand coming from financial services, retailers, hotels, and the bullion industry," says SIS's Sinha who has a fleet of 523 vans across 130 cities. This vertical, too, has been a beehive of activity for private security agencies. Last year, SIS bagged the largest contract in cash management in recent times - a four-year, Rs 40 crore contract from Union Bank of India to secure its cash services.

Venture capitalists (VCs), hedge funds and bulge bracket investors like Rakesh Jhujhunwala have been buying into the business. In 2005, Jhunjhunwala picked up 30 per cent equity in Tops Security, the holding company of Topsgrup. In 2007, ICICI Venture also bought a 14 per cent equity stake in Tops Security, while Indivision, the investment arm of Future Group, increased its stake in the company to seven per cent.

Jhunjhunwala, who still owns an 11 per cent stake in Tops Security, says he's bullish on the sector. "Our investment was driven by the fact that such service models globally receive high valuation multiples on account of high ROEs and high entry barriers," he adds. Topsgrup is now planning to hit the capital market with an IPO of around Rs 300 crore by 2011-12. Concurs Randhir Kochhar, Director of hedge fund D.E. Shaw India Advisory Services, which bought a 14 per cent stake in SIS India for around Rs 300 crore in January 2008: "The sector is going to expand tremendously due to rapid growth in areas such as financial services, airports, ports, railways, construction and retail."

For hundreds of thousands of job seekers in India, private security throws up a wide array of opportunities. The number of people employed as guards is expected to double in the next five years to 10 million. Entrylevel salaries can be as high as Rs 7,000 per month for an eighthour duty. But industry players think it is still difficult to cater to the rising demand. "Quality manpower is the biggest challenge. Only 1 in 100 people who apply to us fulfils the eligibility criteria - personality traits (height and weight), educational qualification (matriculate) and good communication skills," says Arjun Wallia, Chairman of Securitas India, which employs 15,000 people and will take another 8,000 over the next year. Other big organised players are also scaling up. G4S employs over 1.5 lakh and will add another 50,000 by 2013 while Topsgrup has 85,000 on its rolls and is planning to recruit 36,000 people in the next two years.

SIS, one of the biggest domestic players, has gone one step ahead of its competitors. The company has tied up with the government for training and placement of rural youth under its Swarn Jayanti Shahri Rozgar Yojna. The company has also designed a diploma course in collaboration with the Indira Gandhi National Open University which gives 320 hours of training to individuals. "Almost 60 per cent of this trained manpower is absorbed by us and the rest by other industry players," says Sinha.

However, there are some concerns. The booming demand for private security has ensured the entry of several fly-by-night operators in the unorganised sector, which still accounts for 40 per cent of the market. Most of them flout the mandatory norms and guidelines for security agencies. According to the Private Security Agencies Regulation Act, 2005, every security guard needs 160 hours of training before deployment. All private security firms are required to obtain a licence from the government which involves registration of the employees.

Established players like G4S, Securitas, SIS, Topsgrup and ESMS India claim that their average training hours are greater than mandated but the unorganised players seldom follow the rulebook. "The unorganised sector largely serves the residential market where there are affordability issues. They don't spend money on training and pay lower wages to the guards," says Iyer.

The private security companies also feel they are handicapped as they are not authorised to issue weapons to their employees. The agencies have to depend on individual arms license holders when there is a need. They also have to inform the police whenever they provide armed guards for the security of clients.

The industry is now lobbying hard with the Ministry of Home Affairs to grant them the permission to issue firearms to their staff. For the moment it appears certain that, given the supply-demand mismatch, the industry will continue to see exponential growth rates.