Private security and facility management industry has bounced back from pandemic pangs, and is prepping for the big leap
In December, private security and facility management firm Tenon Group's founder Manjit Rajain was speaking to Microsoft's global head of security. Rajain figured out during the conversation that the biggest concern of large corporations was tracking health of employees outside office premises. "He said while he can secure people inside the complex, what happens when they go out? The employers are worried about how their employees are interacting outside office," says Rajain, who is now trying to devise a solution that can track people outside office - only for health reasons. "We have gone to officials at Aarogya Setu. We are asking them to share data of people who have come closer to people I have been tracking," he says.
Rajain is part of the economy that has, after hurting for some months after the pandemic, seen good growth of late - private security and facility management business. For instance, business research agency Freedonia has estimated that the private security industry is expected to grow at nearly 15 per cent CAGR (compounded annual growth rate) to touch Rs 1.6 lakh crore by 2024, doubling from Rs 80,000 crore in 2019. Facility management business is expected to grow from Rs 1.1 lakh crore to Rs 2.3 lakh crore during the period.
Experts say the private security industry felt the impact of the pandemic for the first two quarters. The growth rate picked up from third quarter onwards. It is likely to recover fully after March 2021. "The impact varies from one player to another. The unorganised segment has been hurt the most, and within the organised market, companies with large exposure to IT/ITeS sector, educational institutions, hotels, malls, etc, have been affected. Players with exposure to essential services such as manufacturing, healthcare and banking have been largely unaffected by the crisis. In general, security services were lesser impacted and were operating close to full capacity," says Snigdha Sharma, Senior VP (Investment Banking) at DAM Capital Advisors (erstwhile IDFC Securities).
Rituraj Sinha, Managing Director of SIS Group, says the security industry has a low correlation with GDP. When economy grows at 5 per cent, the private security grows at 15 per cent, he says. That's because when new things are being built (highways, hotels, car dealerships, et al), demand for guards and cleaners goes up. "But when economy shrinks 5 per cent, we still grow at 3-5 per cent. It's a unique phenomenon that doesn't apply to many businesses. It's possible only in e-commerce - people buy goods online when they get more money in a good economy; but in recent lockdowns, too, demand for e-commerce didn't go down. . We have multiplier effect on the upside and protection on the downside," he says.
For instance, SIS reported consolidated revenues of Rs 4,324.59 crore in first half of FY21, 5.5 per cent higher than in the corresponding period last year. "Security services were notified as essential services right at the beginning (of the lockdown), and therefore, we were least impacted, and also the first to report V-shape recovery," he says.
Private security and facility management are broad terms that include a host of services. The number of activities under their ambit has been rising. Take facility management, which involves soft services such as housekeeping, cleaning, horticulture and also hard services like managing air-conditioning, heating, electricals and generators. Then there are outsourced manpower services like front desk, reception and help desk. On top of these, there are specialised services like pest control and catering.
For instance, Bengaluru-based Quess Corp is working with oil & gas, chemical, steel, engineering and telecom firms to design, procure, erect and commission their projects.
Tenon Group, on the other hand, operates assembly lines for making cars; it's even running paint shops for automotive companies.
"Earlier, anything not core to the business was being outsourced to us. Now, it's gone beyond non-core to cover even high-risk jobs. For example, running paint shops is a high-risk job as even one dust particle can affect production. We are doing this work for Renault Nissan and Mercedes in India, and BMW in the UK. We are also running fire stations in north and central England where, except firemen, all people belong to us," says Rajain.
What about recovery from the pandemic? DAM Capital Advisors' Sharma says the facility management segment is expected to take longer to recover. Not just that, large verticals within the security segment are never going back to normal. Take escort services. A rule mandates that companies must provide guards to women workers going home during night hours. Since a large number of IT/ITeS companies have asked employees to work from home, this business is going to suffer a lot. In hotels, restaurants and malls, as average footfalls have come down, guard strength has been reduced by 30-50 per cent.
"We have large exposure to IT and backend offices. The cabs that used to pick up female employees are out of business. The requirement for guards is also down. Though the business is stable, it could take one year for us to reach pre-Covid levels," says Rajeev Sharma, Managing Director, G4S India.
The Times are A-Changin'
Neither customers nor employees used to think highly of the private security industry. It was always considered a low-value job. The government also neglected the industry despite it being one of the biggest employment generators. For instance, India has 15 lakh police personnel and 50 lakh guards. But things have started changing.
When Covid-19 struck, the government classified them as an essential service, which gave them freedom to move around without restrictions. The government also announced a package for labour-intensive industries, besides launching the Rs 22,810-crore Atmanirbhar Bharat Rozgar Yojana, targeted towards such industries. Now, the industry is asking the government to classify guards as frontline workers so that they get the vaccine on priority.
When large swathes of the population migrated from cities to smaller towns, personnel covered by social security stood guard. An industry player says a large number of cash van drivers who left their jobs to drive for Ola and Uber have come back for guarding jobs. Why? Since people now prefer to travel in their own cars, cab drivers hardly make money despite working for 14-15 hours a day. Guarding job, on the other hand, fulfils three basic needs of employees: minimum wage, job stability and social security cover (through employee health scheme, provident fund and gratuity).
"They want social security and stability instead of a few extra bucks. The entire sector is covered by social security - both organised and unorganised segments. From telecom vendors to rentals, companies reduced rates across the board. Our customers didn't cut rates, and are, in fact, releasing payments on time. The pandemic has brought recognition to the industry," says SIS' Sinha.
The Tech Play
Experts say technology will define the future of private security and facility management. Security firms had started investing in tech even prior to Covid but demand from end-customers has spiked over the past few months. Tenon Group, for instance, has a three-year-old tech arm, Soteria, that can remotely monitor businesses anywhere in the world through data analytics and artificial intelligence. It has two command centres, in Gurgaon and Singapore. "We have seen over 100 per cent growth in this business in past six months. There has been a mindset change among customers. I am monitoring 1,40,000 people currently," says Rajain.
For instance, one of its tech solutions is installed at Mumbai's Nirlon Knowledge Park. Till March, this office cluster was hardly using technology and monitoring was being done physically. Tenon deployed cameras, motion sensors and a unique software whereby when a person enters a building, the camera at the reception checks body temperature. If it's above normal, the system blocks the person's access card.
"Nearly 20,000 people worked on that campus. Even now, some 12,000 come to work. If two people come within two metres of each other, their phones send alarms in the form of vibration. The cost for this entire solution is just Rs 3 per person per month. As my size grows, my costs will start coming down. Plus, I am collecting so much data that will become huge wealth," says Rajain.
SIS has launched a subscription-based software product, Virtual Covid Marshall, which uses existing CCTVs in offices to check body temperature, face mask compliance, crowding, frequency of cleaning and assures vehicle disinfection compliance. "We saw new streams of business after the lockdown. A lot of our clients reached out to us for sanitising their offices periodically. We have also given them tech solutions to monitor temperature through thermal cameras," says G4S India's Sharma.
Analysts say a blip in growth of security firms doesn't take away from the fact that the secular opportunity in the industry remains intact. Both the segments (private security and facility management) are highly fragmented and there are opportunities to formalise the industry through organic and inorganic routes. In future, two trends are likely: formalisation of the market with organised players gaining more share, and consolidation through acquisitions.
At the moment, organised players account for 35 per cent share of the security business. This is expected to jump to 40 per cent by 2024. In the facility management space, their share is even lower, 25 per cent, but could go up to 30 per cent in next three years.
"Organised players are more compliant with regulations. The smaller players are bleeding. It's a game of scale, and with low margins, existence of fringe players is under threat. Consolidation and formalisation will contribute to stronger growth when everything normalises post March 2021," says an analyst.