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November 26, 2008

Growing with each blast

For an overseas investor researching "hot sectors" in India remotely, it looks like the easiest thing to do would be to list services that the government is expected to deliver and, then, invest in private Indian companies which are filling the yawning gaps. Physical Infrastructure, Healthcare and Education come to mind. And given that the government is finding it "challenging" to deliver on its fundamental job of providing Law & Order, it's not surprising to see Businessworld come out with a cover story on the booming market for private security services.
Much of the demand for private security has been precipitated by the series of bomb blasts that have rocked India over the past decade. India is now one of the world’s most terror-prone countries, with a death toll second only to Iraq, says a report from the National Counterterrorism Center in Washington. India’s crime rates, already some of the highest in the world, are also rising, as is the incidence of corporate espionage, though there are no official figures for this. But with a police force of just about 1.6 million, India has just 1.45 cops for every 1,000 citizens, much lower that the global average of 3 per 1,000, as per a UN report. Little wonder, then, that the country is home to the largest private force in the world, with 5.5 million guards across the country, according to CAPSI. In fact, the private security industry, which is employing an additional one million new people every year, is already India’s second-largest employer and could soon overtake the largest, manufacturing, which employs 5.6 million people.

The organised private security business — industry estimates put its worth at Rs 5,000 crore — is growing at 35 per cent. (The total size of the sector including smaller firms that do not file IT returns is pegged at Rs 10,000-15,000 crore.) This year alone 200 new security companies were established, including one promoted by DLF, signalling the entry of mega corporates into the business.

Besides, this year, Mumbai-based TOPSGRUP also acquired a majority stake in Shield Guarding of the UK for Rs 125 crore in an all-cash deal. “This is the first-ever acquisition of an overseas security company by an Indian firm,” says Rahul Nanda, the company’s chairman and managing director. Companies such as G4S, which saw a 30 per cent revenue growth last year — gross profit margins are around 20 per cent for companies in the sector — are working to become more professional, offering sophisticated security solutions and hiring managers from across industries.
Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in