Commercial spaces re-open vistas for security service firms: CRISIL

The Indian private security service industry will grow 12-14 per cent to about Rs 1 trillion in revenue in 2022-23 (FY23), driven by the gradual post-pandemic reopening of offices across the country, a CRISIL MI&A Research estimate shows.

The tailwinds include infrastructure development, urbanisation, growing incidents of crime and terrorism, and a low police-population ratio. Rising private investment and recovery in commercial real estate are supporting demand growth too. This is good for micro, small and medium enterprises (MSMEs), which account for 35-40 per cent of the industry’s revenue. 

As things stand, industrial and manufacturing; banking, financial services, and insurance; retail; and IT and IT-enabled services account for a significant share of industry revenue.

Private security players’ key service offerings include manned guarding, cash management services, and allied services such as electronic security services. Manned guarding accounts for 75-80 per cent of the industry. 

Thus, labour cost is a major share of input cost, and regulatory changes for compliance and minimum wages tend to impact margins. With rising wage inflation, profitability has been declining in the last two fiscal years. 

The industry comprises large multinational and Indian players at one end, and a fragmented unorganised segment mostly comprising MSMEs. 

Compared with large players, MSMEs’ margins are more constrained, due to their lower working capital efficiency, inability to offset wage inflation and limited ability to scale up operations across the country. 

With erosion in margins, the industry has seen smaller players exiting, leading to consolidation. 

Besides, the industry is seeing a gradual shift from the unorganised to the organised segment with rising demand for superior services, as exclusive facilities such as shopping malls, special economic zones, self-contained townships, and IT parks proliferate.