Executive Summary

We suggest cancelling any new housing projects in the pipeline and increase the
efforts in commercial projects. Analyses points out that housing apartments supply
outnumbers the demand by a factor of 5. On top of that the sluggish economy is
resulting in increased unemployment rate. Also loss of 239.49 crore loss in Q3 and
419 crore loss in Q4 last year (Source: Economic Times) proves the fact that luxury
housing is a bad investment right now. The focus should be on commercial projects.
According to the data the demand for commercial projects is really healthy and the
occupation rate for them will be really high and so will be the ROI.
The porters force of Market Substitute has kicked in and people are investing in
gold bonds, stocks instead of property. If the supply keeps increasing the prices will
further plummet resulting in more losses. Increasing efforts in commercial projects
and preventing new players to enter the housing market should be the top priority
for DLF.

Analysis
Industry and Scope
DLF Ltd., incorporated in the year 1963, is a Large Cap company (having a market cap of
Rs 24,009.3 Cr.) operating in Construction sector. Its major operations are Property Development and
lease rentals. Property Development contributed Rs 2713.49 Cr to Sales Value (89.94% of Total Sales),
Lease Rentals which contributed Rs 210.09 Cr to Sales Value (6.96% of Total Sales), Other Operating
Revenue which contributed Rs 93.11 Cr to Sales Value (3.08% of Total Sales), for the year ending 31Mar-2015. (Ref: Economic Times). Since the company is majorly focused in India its scope lies within the
country.

Segments
The segments of construction industry are as follows:

Commercial: Housing made for commercial purposes

Industrial: Projects made for industries
Public-Non Housing: Non-housing public building projects.
Private Housing: Private house building projects.
Public Housing: Public house building projects.

(Ref: Designingbuildings.co.uk)

Commercial and Industrial building is the most profitable currently in India but those to
segments also have hefty entry barriers since you need a lot of industry connection and legal
expertise to get started with it.

Analysis using 5 forces of Porter

Threat of new entry

Minimum due to high capital requirement and legal expertise.

DLF has excellent resources available because of its expertise.

Threat of substitution

Customers are investing in gold and stocks instead in home and

infrastructure due to a sluggish economy.

Bargaining power of suppliers

There are many cement companies, brick industrialists and huge work force
available. So, the bargaining power is minimum.

Bargaining power of buyers

It is also minimum as there are few reputed real estate and construction
companies are present and India population is ever increasing.

Threat from competition

In the recent past, even small real estate and construction companies are
also getting good reputation for their quality standards. It will hurt DLFs
business the near future.
DLF has to face stiff competitions from its existing rivals. This risk is very
high.

Potential Changes in each force

Threat of new Entry

Construction industry is not fairing well due to housing slow down in recent
quarters which is evident by the losses of DLF, so this would be the worst
time for any new firm to make an entry.

Threat of substitution

Due to sluggish economy people are opting to invest in gold bonds, stocks
etc. So the threat of substitution has become a reality in real state at this
point of time. To overcome it we need to wait for the economy to get back up.

Bargaining power of buyer

The bargaining power of customer is very less and hence it indicate huge
business development for the real estate industry. It is huge motivation for
real estate group.

Bargaining power of suppliers

There are many cement companies, brick industrialists and huge work force
available. So, the bargaining power is minimum for suppliers.

Threat of competition

The success of small real estate companies will force people to repose faith
on those. This may increase of the no. of companies in the industry leading to
competitive prices and may result in the cost of land or construction.

Strategic Implications
Reshaping Structure:

DLF suffered 239.49 crore loss in Q3 and 419 crore

loss in Q4 last year due to housing slowdown in sluggish economy. (Ref.
Economic Times) In this situation its time to slow down on private housing
and focus on commercial building and structure the resources according to
that. The industry needs to wait for the supply to rise again and the economy
to pickup. Flooding the market will only worsen the situation.

Source: Ambit Capital Research

Capitalizing on industry change: For DLF to capitalize on industry change they need
to slow down the housing projects and focus on commercial and infrastructure project.
Supply has far exceeded the demand for the type of housing they do. They just need to
wait for the economic slowdown to go away and the demand to get back up. The chart
listed below explains everything.

Source: John Lan Lasalla Research

Secret to Success in Real Estate

Having a plan: You need to set your long term and short term goals before jumping in
the boat. Also you need to understand the risks, so a risk assessment should be done
and it is very important to try and determine the possible future industry trends so you
can prepare yourself for all kinds of circumstances.

Networking: A network can always provide support and create new opportunities in
tough situations. Good realtors have amazing networking skills. Your network can have
your mentor, clients, business partners, members of NGO etc. This allows investors to
challenge and support one another.

Industry Details
The real estate sector is one of the most globally recognized sectors. In India, real estate is the
second largest employer after agriculture and is slated to grow at 30 per cent over the next
decade.
The Indian real estate market has become one of the most preferred destinations in the Asia
Pacific1 as overseas funds accounted for more than 50 per cent of all investment activity in
India in 2014, compared with just 26 per cent in 2013.

The Indian real estate market is expected to touch US$ 180 billion by 2020. The housing sector
alone contributes 5-6 per cent to the country's Gross Domestic Product (GDP).
In the period FY08-20, the market size of this sector is expected to increase at a Compound
Annual Growth Rate (CAGR) of 11.2 per cent. Retail, hospitality and commercial real estate are
also growing significantly, providing the much-needed infrastructure for India's growing needs.

During the first nine months of 2015, PE funds invested about US$ 2.4 billion in the real estate
sector, across 53 transactions compared US$ 1.3 billion across 57 transactions in the same
period last year. Deal sizes have also increased in 2015, and residential projects both luxury
and affordable have attracted a substantial amount of capital.

(Source: Cushman &Wakefield, Aranca Research, Ibef.org)

Strategy for a new Entrant

Plan Ahead: The investor should have set long term and short term goals. Investor
should be aware of the potential losses in between but the big picture should be clear for
him.

Networking: A network can always provide support and create new opportunities in
tough situations. Good realtors have amazing networking skills. Your network can have
your mentor, clients, business partners, members of NGO etc. This allows investors to
challenge and support one another.

Market Knowledge: In-depth knowledge of the markets is required. Investor should

know the economy condition, unemployment rates, industry trends and change in
spending from consumers.

Risk Assessment: Risk assessment should be done in advance and the investor
should know about potential huge losses in between.