Security services industry on slow comeback course: CRISIL SME Tracker

The security services industry is seeing a gradual revival, with schools reopening and offices initiating a phased return to work as the pandemic impact eases.

The industry was hit hard in the last fiscal year (FY21) -- and earlier this fiscal (FY22) -- as lockdowns and restrictions resulted in many offices and commercial establishments trimming down their security and facility management staff.

The recent resurgence of Covid-19 cases owing to the omicron variant also caused hiccups, albeit less severe than during the first two waves.

Micro, Small and medium-sized enterprises (SMEs), which account for half of the sector, were hit especially hard, as they faced additional challenges of labour unavailability and working capital requirement. Larger players fared better because of their established relationships with big clients and access to working capital.

As a result, despite a projected 10-15 per cent growth this fiscal, the industry is expected to fall back to the FY18 level owing to negative growth of 30 per cent last fiscal.

The industry operates on thin margins, as labour accounts for 80-85 per cent of its total cost. This has been exacerbated amid the pandemic, owing to high attrition rates and escalation in the cost of hiring and retaining workforce.

Margins are expected to remain under pressure going into the next fiscal, because of wage hikes and the inability of companies to pass on costs completely.

Any new variant of Covid-19 and subsequent restrictions will also bear watching.

On the positive side, the capex plans of multiple industries and full reopening of offices do offer tailwinds.