Security firms able to enjoy secure footing

The eleventh day of September 2001 changed the way the world looked at security. In India it changed the universe of private security agencies.

"The security spend of multinationals doubled overnight. Before this, most companies would have had a security officer. If they were advanced, they might have had a Loss Prevention Officer. But after 9/11, it was the CEO himself who began his day, asking his team: 'What's our security like?'" said Rituraj Sinha, chief operating officer, Security and Intelligence Services (SIS) India Ltd.

"The sector has grown from Rs 500 crore to Rs 10,000 crore in the last five years. We expect it to double at around Rs 20,000 crore by 2012," said Paramjeet Singh Sahi, chairman and managing director of Nisa Group of companies.

"Our own company grew from a Rs 35 crore-enterprise five years ago to Rs 150 crore now. The increase in the number of shopping malls, multiplexes, BPOs and software companies has boosted the demand for security solutions."

Rapid growth has seen capital flooding the sector. The industry witnessed its first private equity (PE) placement in 2005 when Rakesh Jhunjhunwala picked up 16 per cent equity in Topsgrup, a Mumbai-based security firm.

In August this year, ICICI Venture and Indivision, the PE arm of Future Capital Holdings, together picked up 16.46 per cent equity for Rs 140 crore in the same company. Today, not just Topsgrup but several others are considering listing themselves on the BSE and the first IPO is expected to hit the market in the next three months. While the union and state police forces has a total of 2.2 million workforce, the industry employs approximately five million people (according to Central Association of Private Security Industry data) with an annualised growth rate of 20 per cent. Globally, attrition levels are high "" as much as 60 per cent "" but the figure is 30 per cent in India. Training costs range from five to 10 per cent of the revenue of any company and as labour costs are low, electronic security is yet to emerge as an alternative.

Industry estimates suggest the global security services market has grown 4.5 per cent in the last fiscal. The Asian security market grew 10 to 12 per cent. But the Indian market has seen a 22 per cent growth. Even international security agencies are taking interest in Indian firms. In July, UTC Fire & Security, a business unit of United Technologies Corp, signed a share purchase agreement to acquire a stake in the Gurgaon-based Alba Control Systems Ltd, an electronic security company.

The market response has prompted diversification: companies are now looking beyond the bank cash guarding business (providing security to bank vans moving cash and is the most profitable for the sector) and guarding solutions. They are now looking at training a force for the global need for geriatric care, household services providers and paramedics; emergency response services patterned on 9/11 and air rescue.

As the industry grows, regulatory issues are causing anxiety. Parliament has passed the Private Security Agencies (Regulation) Act, 2005 (PSAR), but so far the only state that has put a licensing system in place is Maharashtra. The net result is that the hole in the wall security establishments are put on the same footing as professional set ups. There are no quality standards and self-regulation is the norm. While PSAR makes the police the nodal agency in dealing with the industry, it continues to fall under the labour ministry.

Also, technically the industry falls in the service sector and therefore, the entire wages of an employee is subject to service tax "" not the cost of the service provided. It is hardly surprising that the industry is one of the highest service tax payers in India. Home Minister Shivraj Patil recently observed at a conference that the government did not want to control private security agencies; rather, it wanted to encourage them "" provided the power that was given to them was not misused.