DLF Ltd.

SUBMITTED TO:

Dr. TRILOCHAN TRIPATHY,

Faculty, IBS,
Hyderabad

SUBMITTED BY: (SECTION-E)

RICHA SINGH (09BSHYD0658)

S PUJA MURTHY (09BSHYD0705)

SAUMYA SAXENA (09BSHYD0748)

SHAKTI SAHAY (09BSHYD0763)

1| Page
 ACKNOWLEDGEMENT

An effort is not complete and successful till the people who make it possible are given due credit
for making it possible. We take this opportunity to thank all those who have made the endeavor
of ours successful. The entire journey from the very idea of this project to reality would not have
been possible without the guidance of many experienced people. We would like to thank our
mentor Dr. Trilochan Tripathy. We thank you for being supportive. This project would not have
completed without your support.

Richa Singh

S Puja Murthy

Saumya Saxena

Shakti Sahay

2| Page
 TABLE OF CONTENT

1) Real estate and DLF……………………………………………………………4

2) Key driver factors for the growth of DLF……………………..………………5

3) Analysis of demand and supply function………………………………..…….7

4) Demand forecasting of raw materials…………..………………………..…….9

5) Analysis of cost…………………………………………………………….….12

a) Cost function for variable labor and constant input cost………………….13

b) Cost function for variable cost of capital and constant labor cost.........…..13

c) Marginal cost of labor……………………………………………………..14

d) Marginal cost of capital…………………………………………………....15

e) Average of cost of labor…………………………………………..……….16

f) Average of cost of labor……………………………………………….…...17

g) Relation between total cost, average cost and marginal cost……………....18

1) Market structure in which DLF operates………………………………….……21

2) Porter’s Five Forces Model……………………………………………….…...22

3) Nash Equilibrium………………………………………………………….……24

4) Conclusion ……………………………………………………………………..25

5) References ……………………………………………………………………...26

3| Page
 REAL ESTATE SECTOR AND DLF

India is the 4th largest economy in terms of purchasing power parity. With a growth rate of 9%, it
is found to be in a good shape to expand and grow further. The major factors that induced the
growth rate were the performance of Information technology, Real Estate segment, and healthy
financial conditions apart from the very conducive market initiatives taken up by the
Government of India. The real estate industry is one of the fastest growing industries in our
economy.

Growing at a scorching CAGR of 35% the realty sector is estimated to be worth US$ 90
Billion. It is anticipated to grow at a rate of 30% annually over the next decade, attracting
foreign investment worth US $ 30 Billion .This substantial growth has been the result of
increasing demand from off shoring consulting houses and call centers. Every year 78% of the
money spent on real estate goes to the GDP. About 80% of the real estate development in India
has been in the field of residential housing. The remaining 20% of the real estate includes office,
shopping malls, entertainment centers, hotels, multiplexes and hospitals. Large investments are
underway in areas of: Highway development, Air connectivity (domestic and international), up
gradation of ports with their privatization, power sector.

Real estate developers have been at the forefront of the real estate boom sweeping across the
length and breadth of India. Armed with efficient units of architects, engineers and managers,
builders like DLF have managed to change the skyline of many Indian cities.

4| Page
 Key Drivers for the Growth of DLF:

Commercial:

• Industry Growth: Real estate sector is growing at a rate of 35%.Credit to the housing
sector has continued to be strong and benefited from low interest rates and incentives. In
real estate sector in India, there are high returns up to 12-15% as compared to returns in
advanced countries i.e. 3-5%.Estimated growth up to 90 US$ by 2015.
• Special Economic Zones: SEZs likely to be preferred for IT commercial office space
development.
• Growth in retail sector, hotels and townships: Spiraling demands for hotel rooms has
brought boom in hotel industry, and the demand-supply mismatch remain over 50%
beyond 09, generating substantial business for DLF. Integrated townships, Spurt in
extremely large retail spaces results in high growth opportunities.

Retail:
 Growth in organized retail
 Rising consumerism
 Entry of international retailers
 Concept of specialized malls gaining popularity
Tourism:
 Increase in International tourist arrivals
 Growth in domestic tourism
 Low cost airlines and improvement of airports

5| Page
  Medical tourism
 Tremendous potential for budget hotels
• Growing Knowledge and technology driven sector: Demand for higher level
education, professional trainings, better infrastructural facilities have given a boost to
DLF’s business. The robust growth in IT sector has pumped up the growth in real estate
sector, approx 60% of new construction is for IT sector resulting in major projects for
DLF.
• Growing FDI: FDI regulations are liberalized, and 100% FDI is allowed under
automatic route in townships, housing, built up infrastructure and construction
development projects. Venture capitalists are also allowed investing in India, giving a
boost to its operations. The Reserve Bank of India announced a special stimulus package,
to allow banks to provide special treatment to real estate sector. It has decided to extend
exceptional concessional treatment from June 30th, 2009.
○ Area for integrated townships increased.
 Minimum capital investment decreased.
 Full repatriation of original investment after 3 years.

Residential:

• Urbanization: According to the United Nations Population Fund (UNFPA) By 2030

more than 40.7% of Indian population would be urbanized. Presently, more than 28.7
per cent of India’s area is urban as against the global average of 48.7 per cent. India’s
‘Mega-Cities’ of Mumbai and Delhi would be the world’s 2nd and 3rd largest cities by
2015, which is a big time demand driver for DLF.

• Growth in per capita income: India’s per capita income is expected to be US$ 693 this
year and is further expected to grow by 8-13 per cent in the next five years, particularly
due to growth in the services sector, which thereby results in increase in demand for the
residential sector.

• Rising first time buyers and increasing household: With an increase in per capita
income, the number of first time buyers also increases resulting in up thrust in the
demand.

6| Page
 Analysis of Demand and supply function for DLF

Demand side analysis: There are various other factors which affect the demand. Based on these
factors we can derive the demand function for DLF.

D=F (I, P, Cb, Cr, T, Ps)

D=demand for DLF; I= Income of consumers; P=price of housing; Cb= cost of borrowing;
Cr= availability of credit; T= Consumer preferences; Ps= price of substitute and complement.

Rising income levels of a growing middle class along with increase in nuclear families, low
interest rates, modern attitudes to home ownership (average age of a new home owner in 2006
was 32yrs compared with 45yrs a decade ago) and a change of attitude among the young
working population from that of ‘save and buy’ to ‘buy and repay’ have all combined to boost
housing demand.

Growth in commercial office space requirement is led by the joining outsourcing and
information technology industry and organized retail. Rising middle class and its consumer
demand is driving the retail boom- around 11malls is under development by DLF.

SUPPLY SIDE ANALYSIS: The factors determining supply of real estate can be stated in the
form of a supply function.

S= F (P, A, B, Cr, L)

S= supply of real estate property; P= Price of the property; A= Availability of land; B= efficient
builders; Cr= easy accessibility of credit; L= Skilled labor

The residential sector which accounts for 75-80% of the turnover has been on a high growth
path. According to the ministry of housing and urban poverty alleviation there is a shortage of
24.7 million houses in the country. So far, the situation in both the office and residential market
has been that whatever is billed gets sold or rented. In future, as supply increases, DLF has to be
more careful about factors like location and target those segments for which they are developing

7| Page
the products. In this supply rich environment, accurate demand estimates will become very
important.

DEMAND PULL IMPACT SUPPLY PUSH IMPACT

FACTORS FACTORS
• Robust and • Increasing • Policy and • Entry of domestic
sustained growth occupier base regulatory and foreign players
• Upsurge in • Rise in demand reforms • Improved quality of
industrial activities for industrial • Positive outlook real estate assets
• Favorable space of global • Large scale
demographic • Demand for new investors development
parameters avenues • Infrastructure
• Rise in • Creation support and
consumerism demand for new development by
• Rapid urbanization housing government

Demand forecasting of raw material

A method to estimate future value on the basis of past information is called demand forecasting.
Generally demand forecasting is done for either estimating the future sales or estimating future
requirement of inventory or raw material.

8| Page
Here demand forecasting for raw material for the “quarter 30-Jun-09” has been done on the basis
of last four quarters. First, a relation has been established by using regression tool, where the
coefficient of intercept and the coefficient of sales (which is the independent variable) were
found.

Data:

Quarter Ended Net Sales/Income fromOperations  Consumptionof RawMaterials

31-Mar-09 5553 -9276

31-Mar-09 42441 21020
30-Sep-08 107495 31102
30-Jun-08 127861 35953

Based upon above data, the coefficient of determination, the coefficient of intercept and the
coefficient of sales is given below:

Regression Statistics Coefficients

Multiple R 0.925785583 Intercept -3749.134502
RSquare 0.857078946 sales 0.331023603
StandardError 9396.311322
Observations 4

From the above figures demand of raw materials for the quarter 30-Jun-09 has been calculated
by the formula:

Forecasted raw materials= -3749.134+ 0.3310* 41797

[Where: 41797= sales of quarter 30-Jun-09]

NetSales ForecastedValue Actual Value

30-Jun-09 41797 10086.65905 12756
It can be seen that the forecasted value is very near to the actual value. It can therefore be

9| Page
concluded that consumption of raw material is dependent upon the sales and can therefore be
forecasted for proper utilization.

PRICE ELASTICITY OF DEMAND

Price elasticity of demand is a measure of how much the quantity demanded of a good responds
to a change in the price of that good. It is defined as the percentage change in quantity demanded
divided by the percentage change in price.

Assumption:

• As the demand figure is not available so the sales figure can be used.
• As the individual cost of raw materials is not available therefore total cost of production
is used.

Data:

Sl. No. Year total cost sales(Cr.) projected

1 Mar '00 105.01 184.39 -52.955462
2 Mar '01 161.68 179.98 81.4000991
3 Mar '02 293.59 280.03 394.137738
4 Mar '03 254.19 244.96 300.726602
5 Mar '04 435.5 495.8 730.583788
6 Mar '05 342.04 412.23 509.004986
7 Mar '06 644.28 953.46 1225.56798
8 Mar '07 434.5 1,101.66 728.212946
9 Mar '08 2,418.85 5,496.96 5432.79133
Here it can be seen that projected sales has been calculated using total cost and actual sales to
establish price elasticity of demand by using regression tool.

10 | P a g e
Regression Statistics
Multiple R 0.992133911
R Square 0.984329698
Adjusted R Square0.982091083
Standard Error 228.1269228
Observations 9
It can be seen that the coefficient of determination is very high.

6000
5500 projected
5000
sales (Cr.)
4500
4000
3500
3000
2500
2000
1500
1000
500
0
-500 Mar '00 Mar '01 Mar '02 Mar '03 Mar '04 Mar '05 Mar '06 Mar '07 Mar '08
Also from the figure it can be concluded that demand varies with change in price that is demand
is relatively price inelastic.

Demand is relatively inelastic because of the following reasons:

• Large number of close substitutes (like Indiabulls Real, GMR infra,

Parsavnath, and other local construction companies).
• Real estate comes under both necessity and luxury.
• Time period is very long and therefore demand becomes elastic.

11 | P a g e
 ANALYSIS OF COST

Cost curve shows the relationship between the quantity of output produced and the total cost of
production. The total cost curve gets steeper as the quantity of output increases because of
diminishing marginal product.

Assumption:

• We have not considered the Depreciation, financial services, net fixed assets, interest
paid and employee compensation costs, as they do not directly affect the cost of
production.
• Since we are considering the short run cost process, we have shown the AC, MC and
TC analysis keeping one of the variables fixed at a time.
• The sales value of the unit product is constant through out the period.
• All the employees are considered to contribute to the cost of the product.
• The input cost is constant and is considered to be the same through out the period.

Data:

Sl. No. Year employee cost (Cr.) Total input cost (Cr.) sales(Cr.)
1 Mar '00 10.33 94.68 184.39
2 Mar '01 15.46 146.22 179.98
3 Mar '02 14.19 279.40 280.03
4 Mar '03 15.49 238.70 244.96
5 Mar '04 21.4 414.10 495.8
6 Mar '05 33.32 308.72 412.23
7 Mar '06 16.76 627.52 953.46
8 Mar '07 44.82 389.68 1,101.66
9 Mar '08 103.78 2,315.07 5,496.96
12 | P a g e
 Cost function for variable labor and constant input cost (K constant):

1200
1000 Sales(Rs. Cr)
800
600
400
200
0
Mar'00 Mar'01 Mar'02 Mar'03 Mar'04 Mar'05 Mar'06 Mar'07

In short run some inputs cannot be varied for a certain period of time. This period varies from
one firm to the other. As seen from the graph that as the no of employees in a firm increases the
output or the sales of the firm also increases. Due to huge difference in scale it is not clearly
visible.

Cost function for variable cost of capital and constant labor cost (Labor constant)

13 | P a g e
 1200
1000
800 Sales(Rs. Cr)
600
400
200
0
Mar '00 Mar '01 Mar '02 Mar '03 Mar '04 Mar '05 Mar '06 Mar '07

As seen from the graph that as the cost of capital employed in a firm increases the output or the
sales of the firm also increases.

Marginal Cost of Labor (MC of labor):

14 | P a g e
 Marginal
Change Cost of
Change in in Sales employe
Sl. No. Year employee cost (Cr.) Sales(Rs. Cr) Labor (Rs. Cr) e(Rs. Cr)
Mar '00 10.33 184.39 0 0
2 Mar '01 15.46 179.98 5.13 -4.41 -0.85965
3 Mar '02 14.19 280.03 -1.27 100.05 -78.7795
4 Mar '03 15.49 244.96 1.3 -35.07 -26.9769
5 Mar '04 21.4 495.8 5.91 250.84 42.44332
6 Mar '05 33.32 412.23 11.92 -83.57 -7.01091
7 Mar '06 16.76 953.46 -16.56 541.23 -32.683
8 Mar '07 44.82 1,101.66 28.06 148.2 5.28154
9 Mar '08 103.78 5,496.96 58.96 4395.3 74.54715
In the table above, marginal cost of employee has been calculated.

MarginalCostofemployee(Rs.Cr)

100
Marginal Cost of
80 employee(Rs. Cr)
60

40

20

-20 Mar'00 Mar'01 Mar'02 Mar'03 Mar'04 Mar'05 Mar'06 Mar'07 Mar'08

-40

-60

-80

-100
Marginal cost is specified as the change in total cost divided by the change in the quantity of
output produced.

15 | P a g e
Graph is drawn based upon the calculation above. It can bee seen that there is an upward trend in
the graph. However the upward trend is not smooth. This could be because of the nature of
business where there is no need of too many employees and the labor working at the
construction site are employed on daily wage basis.

Marginal Cost of capital (MC of capital):

Change
Total Input Cost inSales MCof
Sl. No. Year (Rs. Cr) Sales(Rs. Cr) Change inCost (Rs. Cr) Capital
Mar '00 94.68 184.39 0 0
2 Mar '01 146.22 179.98 51.54 -4.41 -0.08556
3 Mar '02 279.40 280.03 133.18 100.05 0.751239
4 Mar '03 238.70 244.96 -40.7 -35.07 0.861671
5 Mar '04 414.10 495.8 175.4 250.84 1.430103
6 Mar '05 308.72 412.23 -105.38 -83.57 0.793035
7 Mar '06 627.52 953.46 318.8 541.23 1.69771
8 Mar '07 389.68 1,101.66 -237.84 148.2 -0.62311
9 Mar '08 2,315.07 5,496.96 1925.39 4395.3 2.28281
The table above gives marginal cost of capital employed figure.

The U-shape of the marginal cost curve is a direct reflection of first increasing marginal returns,
as marginal cost falls to a minimum, then decreasing marginal returns and the onset of the law of
diminishing marginal returns as marginal cost rises.

As it can be seen that there is steady rise in the marginal cost curve. However during the period
2006-07 due to a sudden surge in the demand of real estate the cost of production decreased
drastically because of economies of scale. Again from the end of 2007 there is a sharp increase
in marginal cost. This was because of recession and inflation, in turn due to which raw materials
became expensive thus increasing the cost of capital.

Average Cost of Labor (AC of labor):

16 | P a g e
 AverageCost
Sl. No. Year employee cost (Cr.) Sales(Rs. Cr) of employee
1 Mar '00 10.33 184.39 17.8499516
2 Mar '01 15.46 179.98 11.64165589
3 Mar '02 14.19 280.03 19.73431994
4 Mar '03 15.49 244.96 15.8140736
5 Mar '04 21.4 495.8 23.1682243
6 Mar '05 33.32 412.23 12.37184874
7 Mar '06 16.76 953.46 56.88902148
8 Mar '07 44.82 1,101.66 24.57965194
9 Mar '08 103.78 5,496.96 52.9674311
The table gives the average cost of employed.

In general, average cost is simply the cost per unit of output. It is the total cost divided by the
total quantity produced. It can be seen that till 2005 average cost was steady but it suddenly
started showing irregular trend. However nothing much can be inferred from the graph as there
is no particular relation fitting.

Average Cost of Capital (AC of capital):

17 | P a g e
 Total Input Cost
Sl. No. Year (Rs. Cr) Sales (Rs. Cr) AC of Capital
1 Mar '00 94.68 184.39 1.947507393
2 Mar '01 146.22 179.98 1.230884968
3 Mar '02 279.40 280.03 1.002254832
4 Mar '03 238.70 244.96 1.026225388
5 Mar '04 414.10 495.8 1.197295339
6 Mar '05 308.72 412.23 1.335287639
7 Mar '06 627.52 953.46 1.51940974
8 Mar '07 389.68 1,101.66 2.827088893
9 Mar '08 2,315.07 5,496.96 2.374424963

The curve shows a normal average cost of capital graph as it is a “u” shaped. In the initial years
it is decreasing but in the later years it has started increasing.

Relation between Total Cost, Average Cost and Marginal Cost for constant cost of labor:

Total Cost(Rs.100 Marginal Costof AverageCost

Sl.No. Year Cr) capital (Rs.Cr) ofCapital
1 Mar'00 1.8439 1.947507393
2 Mar'01 1.7998 -0.08556461 1.230884968
3 Mar'02 2.8003 0.751238925 1.002254832
4 Mar'03 2.4496 0.861670762 1.026225388
5 Mar'04 4.958 1.430102623 1.197295339
6 Mar'05 4.1223 0.793034731 1.335287639
7 Mar'06 9.5346 1.697710163 1.51940974
8 Mar'07 11.0166 -0.623107972 2.827088893
18 | P a g e
A curve that graphically represents the relation between the total costs incurred by a firm in the
short-run production of a good or service and the quantity produced. The total cost curve is a
cornerstone upon which the analysis of short-run production is built. It combines all opportunity
cost of production into a single curve, which can then be used with the total revenue curve to
determine profit. The marginal cost curve, the focal point for the analysis of short-run
production, is derived directly from the total cost curve. The shape of the curve reflects
increasing marginal returns at small quantities of output and decreasing marginal returns at
larger quantity. .
It can be seen from the graph that when marginal cost exceeds average cost, average cost must
be rising. When marginal cost is less than average cost, average cost must be falling. Also the
position of the marginal cost relative to average total cost tells us whether average total cost is
rising or falling. The short-run marginal cost curve will at first decline and then will go up at
some point, and will intersect the average total cost and average variable cost curves at their
minimum points. This however is not clearly visible from the figure as there are other factors
also involved in changing the curve.

Relation between Total Cost, Average Cost and Marginal Cost for constant cost of capital

19 | P a g e
 TotalCost(Rs.100 MarginalCostof AverageCost
Sl.No. Year Cr) employee(Rs.Cr) ofem ployee
1 Mar'00 1.8439 17.8499516
2 Mar'01 1.7998 -0.859649123 11.64165589
3 Mar'02 2.8003 -78.77952756 19.73431994
4 Mar'03 2.4496 -26.97692308 15.8140736
5 Mar'04 4.958 42.44331641 23.1682243
6 Mar'05 4.1223 -7.01090604 12.37184874
7 Mar'06 9.5346 -32.68297101 56.88902148
8 Mar'07 11.0166 5.281539558 24.57965194
9 Mar'08 54.9696 74.54715061 52.9674311

The short-run marginal cost curve will at first decline and then will go up at some point, and will
intersect the average total cost and average variable cost curves at their minimum points.
The average variable cost curve will go down (but will not be as steep as the marginal cost), and
then go up. This will not go up as fast as marginal cost curve. The average fixed cost curve will
decline as additional units are produced, and continue to decline. The average total cost curve
initially will decline as fixed costs are spread over a larger number of units, but will go up as
marginal costs increase due to the law of diminishing returns.

Market structure in which DLF operates

Real estate in India follows an oligopoly type market structure with the following
characteristics-Real estate sector is quite fragmented with most players having presence limited
to select cities or regional geographies & relatively few players having national presence. Larger
regional developers increasing their footprints across the country include Ansals, DLF,
Raheja group, Parsavnath developers, Unitech, Vatika group.

• Homogeneous but differentiated products

20 | P a g e
 The real estate companies’ main offering is buildings to the customers. The basic product
is same for all the major players in India. The differentiating factor is the package
offered by these players like the location, add on facilities, premium apartments etc. So
we can say the offering given by the players is homogenous but differentiated.
DLF’s ship-shaped Gateway Towers in Gurgaon, a 12-storey complex, has become a
landmark of sorts for its unique architectural design. DLF Nestle House has been
designed aesthetically together with functional efficiency. Product differentiation is very
important as a developer has to cater to all classes of the society. These projects are very
different from other projects in all aspects - architecture, quality and developmental
mix - and are targeted towards the niche segment.”
• High entry barriers
According to the JLLM report, there is low availability of land banks due to which
about use bank loans for purchasing land parcels, capital raised through private
placements, foreign investments & funds are being used largely for land purchases. Also
initial capital outlay for new entrants is very high and not many firms can afford it.
• Long gestation periods
The market adjustment process is subject to time delays due to the length of time it
takes to finance, design & construct new buildings and also due to the relatively slow
rate of change of demand. Because of these lags there is a great potential for
disequilibrium in the short run. Adjustments mechanisms tend to be slow, relative to
more fluid markets.
• Both investment and consumption good
Real estate can be purchased with the expectation of attaining a return (an investment
good), or with the intention of using it (consumption good) or both. These functions can
be separated (with participants concentrating on one or the other function) or can be
combined (in the case of the person who lives in a house that they own). This dual
nature of the good means that it is uncommon for people to over invest in real estate,
that is, to invest more money in an asset than it is worth on the open market.
• Few dominant firms

21 | P a g e
 Oligopolists are often large firms, each producing a significant portion of total market
output like DLF has 24.38% of the total real estate market, and other players like
unitech & ansals also hold a major share in the market. Also very few firms have a
national presence in India like Ansals, Unitech, parsvnath developers and K. Raheja.

Porter’s five forces model

Porter’s competitive framework represents the relationship between profitability and efficiency
faced by the firms while operating in an oligopolistic kind of market. It includes three forces
from ‘horizontal competition’: threat of substitute products, threat of established rivals and the
threat of new entrants and two forces from ‘vertical’ competition: the bargaining power of
suppliers, the bargaining power of consumers.

Porters Competitive Framework

• Threat of new entrants: Profitable markets that yield high returns will draw firms. This
results in many new entrants, which will effectively decrease profitability. But in real
estate sector entry barriers are high because the working capital requirements are
high. Moreover, the existing firms have the advantage over others due to learning curve
advantages. This can be seen in the case of DLF which started in 1946 and developed
DLF city in 1985 and in 2008 they opened up the first luxury mall. The gestation period
is very long so investors will not be induced to invest.
• Threat of established rivals: 25% of the market share is held by the DLF in the real
estate sector. This shows that the competition is high in this sector with DLF, Unitech,
and Ansals being the major players. This may prove to be a threat to upcoming players,
as the established players are deep rooted in the industry. Though this threat shall not be
faced by DLF as it holds the major market share.

22 | P a g e
 • The bargaining power of suppliers: It is low. Due to the increase in the number of
contractors or service providers, margins have been stagnant despite strong growth in
volumes. The number of suppliers is large so if one will increase the cost than there
will be a shift from one contractor to another.
• The bargaining power of buyers: It is low. The country still lacks adequate
infrastructure facilities and citizens have to pay for using public utilities. It is very
difficult to predict the direction and magnitude of price movement on real estate.
One can only assume that forces of demand and supply would always apply and price
movement would follow accordingly.
• Threat of substitute product: There are no substitutes to the basic product so there is
not any threat of substitute products.

Nash Equilibrium

This is a situation where each player chooses an optimal strategy, given the strategy chosen by
other players in the market. DLF also operates under the same kind of equilibrium. The ultimate
value of commercial real estate emanates from its rental flow, which reflects the in price the
market is willing to pay for the use of space. The developers formulate their
construction/exercise strategies in a world in which the demand for space is stochastic, and
where the construction strategies of their competitors impact the payoff from their own
strategies. Thus, the inputs of the equilibrium are the degree of competition in the market, the
impact of competitive development, and the stochastic process driving the demand for space.
The outputs of the equilibrium are the processes for construction starts, short-term rents,
building values and land values.

23 | P a g e
Say for e.g.: For office space the demand might be driven by job growth. For industrial space
demand might be driven by changes in industrial production. For hotel space demand might be
driven by changes in disposable income.
At any point in time, each firm can develop new rentable units at a cost of K per unit of space.
New development represents an increase in space. Thus, the path of output is continuous, and if
all firms increase capacity simultaneously, the optimal development decision must be part of
an endogenous, Nash equilibrium. Each firm chooses its supply process strategy so as to
maximize its value, conditional on the assumed supply processes of its competitors.

CONCLUSION

Reality sector has seen an increase in competition with the emergence of some of the big players
like DLF, Unitech, GMR, and Ansals. This has brought a sort of price war among them with no
individual player in position of dictating the terms. Even DLF, the market leader has not been
able to set a competitive price to beat its competitors. The Oligopolistic nature of market has
prevented DLF to gain considerable competitive edge. The recent economic downturn saw profit
of all the real estate companies go down.

Real estate price bubble that was assumed to burst in the recessionary cycle did not burst. The
sky high prices of real estate that should have come down did not come down. However a
consolidation phase was seen in the last few quarters. But share prices and profit margins of few
24 | P a g e
of the big giants eroded considerably. Net profit of DLF declined 85.68% to Rs 100.40 crore in
the quarter ended June 2009 as against Rs 700.99 crore during the previous quarter ended June
2008. Sales declined 67.31% to Rs 417.97 crore in the quarter ended June 2009 as against Rs
1278.61 crore during the previous quarter ended June 2008. DLF had to restructure about
Rs2000 crore of short- and long-term loans out of its Rs16358 crore debt by selling a stake
worth Rs2,200 crore. Even Unitech had to raise Rs1620 crore through a qualified institutional
placement and still the firm currently has Rs7800 crore of debt. Ansal’s (API) revenues also fell
21% during Q3FYE09. It also reported a consolidated loss of Rs. 156m for Q309 as against
profit of Rs. 522m in Q308.
Their condition however is fast improving on the back of improving economy. DLF has even
started looking for new investments; the recent land acquisition of 350 acres in Gurgaon is one
such investment. The economic recovery is likely to reinvigorate the interest of foreign investors in
India's real estate market with an enhanced capital inflow in the real estate sector in the medium-to-long-
term. We can thus expect to see competition in real estate sector heating up with a renewed price war.

REFERENCES

1. www.dlf.in

2. en.wikipedia.org/wiki/environmental scanning

3. www.allbusiness.com/glossaries/macroenvironment/4954903-1.html

4. www.valuenotes.com

5. www.moneycontrol.com

6. www.rediffmoneywiz.com

25 | P a g e
 7. Prowess database

8. http://www.investopedia.com/

9. http://www.indianrealtynews.com/

10.http://headlinesindia.com/

11.http://www.brint.com/

12.http://www.allbusiness.com/

13.http://www.emkayresearch.com/

14.http://www.dlfindia.com/

15. http://www.livemint.com/2009/06/24005439/DLF-Unitech-show-path-to-beat.html

16. http://in.reuters.com/article/domesticNews/idINNWNA728420090224

26 | P a g e