How Rituraj Sinha Is Changing The Security Company His Father Founded

At one stroke Rituraj Sinha was putting at stake a business his father had built over 30 years. RK Sinha had founded security service provider SIS (India) in 1974 in Bihar. Now in 2008, his son wanted the Rs 150-crore company to buy an Australian security firm Chubb that was over seven times bigger in revenues. Not surprisingly, none of the senior officials at SIS were enthusiastic. Rituraj was beset with questions: “Who would give us money to make the acquisition? Do we have the management bandwidth to handle such a huge company?” Rituraj admits, “I knew it was a risk that could bring the company to its knees.”

But those were the heady days after Tata Steel had acquired its eight-time bigger peer Corus in 2007. Rituraj, who had joined the family business in 2002, was looking for a global footprint. “I wanted presence in a mature market to balance our portfolio. The high growing and dynamic Indian security market would complement a stable and predictable business in Australia,” he says.

The then 27-year-old though had another rude awakening, as not many were willing to take the youngster seriously. Citigroup, which was managing the sale of Chubb on behalf of the latter’s parent, US giant UTC, refused to give Rituraj access to company information for due diligence. “First show that you have money to buy,” he was told.

Private equity major De Shaw came to the rescue, picking up a 14 percent stake in SIS for about Rs 300 crore. Further, after scores of meetings with banks where many a time he was politely shown the door, Rituraj managed to convince SBI and ICICI to come on board. “I told them that Chubb might be seven times our size in revenue, but with 30,000 employees in 40 branches across India, SIS was five times bigger than Chubb in operations. And then there were enough low-lying fruits for us to turnaround Chubb’s business that had an EBITDA [earning before interest, tax, depreciation and amortisation] of less than 2 percent,” recollects the second-generation entrepreneur.  SIS acquired Chubb for an undisclosed sum (“UTC will sue me if I reveal the number,” says Rituraj) in August 2008.

Now, almost four years later, Rituraj’s risk has paid off. Revenue of Chubb, now rechristened MSS Security, has remained almost stagnant at $350 million but more importantly, its EBITDA is now touching 8 percent. Post-acquisition measures included sale of loss-making mobile security business and shift of offices from expensive real estate to a cheaper one. Consequently, with consolidated revenue expected to top Rs 2,100 crore in 2011, SIS is today the largest Indian security firm and is knocking on the doors of the elite, global top-10 club.

JACK OF ALL TRADES MASTER OF NONE?
Rituraj’s thirst for growth though is far from quenched. Now 31 years old, he wants to transform SIS from a security service provider to a “business support service provider”. Though most of the new verticals are being incubated right now, this will add electronic security, cash management, pest management and facilities management to the present manned guarding business. “There is an immense cross-selling opportunity. Apart from guards, our clients also want someone to take care of their offices, manage their security cameras,” says Rituraj, who is Group Chief Operating Officer. This, adds Uday Singh, CEO of SIS, “will not only make the company an integrated player but will also make it more profitable as these businesses have higher margin than the guarding segment.”

Interestingly, Rituraj’s move comes at a time when another dynamic entrepreneur from the industry, Diwan Rahul Nanda, owner of Tops Group, is just taking the opposite direction. Rituraj claims that SIS will topple Tops this year to become the largest Indian-owned security firm in India. The local unit of G4S, the US major, is the country’s largest. 

Nanda is not amused. “We have already done whatever the competition is trying to do, including global acquisition and getting into other segments,” he says. But the London-based entrepreneur, also a second-generation entrepreneur like Rituraj, is now restructuring his business by refocussing resources in the core business—manned guarding. “Starting a new vertical is easy but managing it is difficult. Management bandwidth comes under a lot of pressure…instead of being jack of all trades and master of none, I have decided to focus on my core strength,” adds Nanda. Not surprisingly, Tops, which acquired Shields in the UK in 2008, has managed to grow only by “around 2 percent” in the last three years; a far cry from 2009 when Nanda told Forbes India that “we will overtake G4S within a year”.

Rituraj agrees that “overheating” of SIS is a risk, especially when its Indian business alone is growing at almost 50 percent year-on-year. “The growth appetite of the company will be challenged,” he says; especially when he also wants to expand the global footprint to West Asia.

“Right now Asia-Pacific is just 10 percent of the global security market. But this region is growing by about 15 percent, while the mature markets like the US and Europe have only about 2-3 percent of annual growth. I believe that 10 years later the Asia-Pacific region will be 25 percent of the global market,” says Rituraj. With no other global firm except for G4S having much of a global footprint in the region, Rituraj wants to be among the first movers and his next acquisition might come in West Asia.

BACK TO FAMILY BUSINESS
It was a combination of the changed perception of the security industry after the 9/11 attacks and a “compelling offer” from his father that prompted Rituraj to come back to India from London. He had become an investment banker after completing his MBA in the British capital.

“In banking, I had become a part of this huge system. After some time, there was yearning to have ownership of my work and have wider impact,” says Rituraj who had grown up watching his father build a business out of Patna and then later in Delhi. With demand for security services increasing after 9/11, Rituraj’s thoughts went back to the family business.

Says the senior Sinha: “I told Rituraj he could come back and take over the company. I would take a mentor role. I realised that both of us had different perspectives; I studied in a municipal school, he is an alumnus of Doon. I don’t have an MBA like him. So it was best that father-son don’t have a direct reporting relationship.”

But he was just not about to hand over his baby to a “twenty-something boy”! Sinha roped in Uday Singh, an old friend and steel industry veteran with long stints in SAIL and JSW Steel as Group CEO. A Group Management Team was formed consisting of company seniors who would jointly take decisions.

This was something new for the Rs 15,000-crore Indian security industry that is even now dominated by retired Army officers operating neighbourhood companies. On the other hand, the mix of “young blood and experienced professionals” saw SIS scaling its business, transforming itself from a Bihar and West Bengal-limited company to a pan-India business, as compared to Tops that is mainly present in the western region. In five years, SIS’ topline grew from about Rs 25 crore to Rs 150 crore in 2007. Then Chubb happened.

FLEXING MUSCLES
The pan-India presence, says Amitabh Jhingan, a partner at Ernst & Young, helps SIS, “as increasingly clients now want to give pan-India contracts. Rates are also being settled centrally.” The advantage, reiterates Rituraj, also holds when the company gets into other services like electronic security and housekeeping. Jhingan agrees: “It is always easier to handle one service provider that has branches across the country than say two or five.”

Another advantage for SIS might come from its extensive manpower supply chain that has a capacity to “recruit, train and certify” 25,000 guards every year, probably the biggest in the world. Like in the security industry, in facilities management too, manpower contributes 60 percent of the costs. “We can leverage this facility to train manpower for our other services,” says Uday Singh. Interestingly, SIS is among the few companies in the sector that has been able to keep itself free of labour unions, who are rumoured to have “caused problems” in “other top companies”.

SIS will need to leverage on this twin-advantage, apart from its 5,000-plus client-base, as it faces increasing competition from multinational majors like G4S and Securitas, who want a pie of the India market, which is among the fastest growing markets in the world. While G4S, the world’s biggest, is also present in cash management services, Securitas, the second biggest, has remained a specialised security firm, giving credence to Nanda’s decision to focus on core strength. 

At the same time Nanda has a point when he says “clients would rather deal with a specialist than a security company that can also provide housekeeping, or facilities management.” Rituraj is ready with an answer. “We are doing two things to take care of that. One, we have formed joint ventures with world’s biggest players in each of the new businesses, giving us access to know-how and technology.” (See box for details.)


The new segments, despite their higher margins than the guarding business, come with their own risks. Cash management, for instance, is capital intensive. Rituraj himself is pumping in Rs 100 crore in the next one year to build systems and get scale in the segment. Also, due to the risky nature of the business (as one is transporting cash for clients from one place to another) insurance becomes expensive. Is Rituraj biting off more than he can chew?

He doesn’t think so. Each new vertical will come under a strategic business unit (SBU) with its own management and balance sheet. “The only benefit these businesses leverage off is SIS group’s infrastructure, customer base and supply chain. We hardly bundle services—each business sells and delivers its service to its customers independently. As such, the customer never sees a guarding company selling cash services or a cash crew delivering cleaning material,” says Rituraj. SIS’ “management bandwidth,” says Randhir Kochhar, director De Shaw India Advisory Private Limited, “is the single largest reason for its ability to maintain this stellar growth rate despite diversifying into different geographies and business verticals.”

At the same time, each of these new businesses are still small in scale and the next couple of years will be crucial. The “vision 2015” is of a $1 billion company. For someone who used to climb the Himalayas in his college days, Rituraj will have to flex all his muscles to scale this one.

{ What SIS is Doing }

SIS is diversifying from a pure man-guard company to a business support service provider. Along with manned guarding, this will include

• • Electronic security
• • Cash management
• • Pest management
• • Facilities management or housekeeping

 

{ The Reasoning } 

• • Most of them are labour-intensive just like manned guarding
• • Have higher margin, more than 15 percent; manned guarding business has a margin of about 10 percent
• • Each of these segments are growing at a high rate in India

 

{ How Rituraj Plans to Pull It Off }

• • Get know-how and technology through tie-ups with leading MNCs—with Terminix for pest management, Service Master for facilities management and Prosegur for cash management
• • Leverage security service clientele of over 5,000 to increase spread of other verticals
• • Create separate business units, each headed by a senior official, to maintain management bandwidth
• • Leverage the captive network of training academies to get trained manpower for new verticals