Professional Documents
Culture Documents
Group No.
Akshay Sanganeria G054
Anand Saxena G055
Himanshi Mehra G039
Isha Dahiya G015
Kanav Kalra G030
Navnita kaur Makker G035
Executive Summary
The Indian real estate sector has transformed from being unorganized to a dynamic and organized sector over the
past decade. This industry is commonly classified into two sub-sectors, namely residential and commercial. It is the
second largest employer in the country after agriculture and is expected to grow at an expected CAGR of 14-15%
over the next decade. Established players like DLF Ltd., Tata Projects, Sobha Developers Ltd., HDIL, Oberoi Realty etc.
are a few dominating this industry.
SWOT of the industry throws light on three major issues which directly affect the Real Estate Industry, Interest Rates,
Government Policies and existence of Black Money in the Industry.
The level of competition in the industry among the major players has been mapped by analysing the Herfindahl Index
among the top ten players of the Real Estate sector. This report concentrates on analysis of top 3 companies
according to the HHI Index, namely, DLF Ltd., Sobha Ltd and Prestige Estate Projects Ltd. Financial health of the
industry is analysed, taking into account the various important parameters. It can be broadly said that the industry is
growing at a declining rate.
Since, real estate and construction industry is the driving force towards the development of any nation, an increased
focus on has been on foreign direct investment has been ensured by the government to build new capabilities to
support growth.
Omaxe Ltd, 1%
Housing Development
& Infrastructure Ltd,
2%
Oberoi Realty, 1%
Prestige Estates
Projects Ltd, 9%
Sobha Ltd, 9%
Real Estate
Uncertainty
Urbanisation
Labour
Income
Govt. Procedures
Challenges
FDI
Drivers
Drivers:
1.
Economic Growth
2.
Urbanisation
3.
4.
Challenges:
prices
SWOT Analysis
STRENGTHS
Expanding cities
100 smart cities project by government
2.
3.
WEAKNESS
The Herfindahl-Hirschman index (HHI) is a commonly accepted measure of market concentration. It is calculated
by squaring the market share of each firm competing in a market, and then summing the resulting numbers. The
HHI number can range from close to zero to 10,000. The HHI is expressed as:
HHI = s1^2 + s2^2 + s3^2 + ... + sn^2 [where sn is the market share of the firm(in whole numbers)].
The closer a market is to being a monopoly, the higher the market's concentration (and the lower its
competition). If, for example, there were only one firm in an industry, that firm would have 100% market share,
and the HHI would equal 10,000 (100^2), indicating a monopoly. Or, if there were thousands of firms competing,
each would have nearly 0% market share, and the HHI would be close to zero, indicating nearly perfect
competition.
Please find below the Herfindahl Index for major competitors in the Real Estate Industry:
Company Name
DLF
Sobha Ltd
Prestige Estates Projects Ltd
Oberoi Realty
Godrej Properties Ltd
Housing Development &
Infrastructure Ltd
Omaxe Ltd
PNC Infratech Ltd
Brigade Enterprises Ltd
Sunteck Realty
Company
Sales(2015)
Industry Sales(2015)
2,374.34
8,105.14
3,016.69
2,394.13
8,105.14
8,105.14
699.24
8,105.14
516.69
8,105.14
Market
Share
HerfindahlHirschman Index
- HHI
0.29
0.08581531
0.37
0.30
0.138528881
0.087251804
0.09
0.007442717
0.06
0.004063863
1,005.25
8,105.14
0.12
0.015382507
942.37
8,105.14
0.12
0.013518293
0.014860616
1,560.99
8,105.14
0.19
988.05
8,105.14
0.12
93.02
8,105.14
0.01
0.03709191
0.000131714
As per the table above, we can see that the three firms we have taken for our analysis constitute about 30% of
the total market share of the industry. For the sake of comparison, we have taken the other top seven market
players/competitors of the industry. After calculating their HI we see that the other seven players market share
amounts to just 9% of the industrys market share. Thus, the top ten market players represent a total market
share of around 40%. It is a very fragmented market. The major share is with the three top players that we have
taken for our analysis Prestige, Sobha and DLF Ltd, whereas the others do not account for a major market share.
The industry is highly competitive, but extremely fragmented. The competition in the industry is not so intense as
there is a huge gap in the market share of the different players.
Company Overview
DLF LTD
With its inception in the year 1946, DLF has come a long way and has become the countrys largest real
estate developers.
DLF has expanded its presence across 24 cities in India in 15 states.
The Properties in residential real estate ranges from 70 lakhs to 5.5 crores catering Super Luxury, Luxury
and Premium category.
SOBHA LTD
In the last 20 years, Sobha has completed 102 real estate projects and 262 contractual projects. The area
covered in this regard has been 70.54 million square feet. It presently has ongoing residential projects
aggregating 41.81 million square feet of developable area and 29.67 million square feet of super built-up
are, with ongoing contractual projects aggregating 9.31 million square feet.
Sobha has footprints in 24 cities and 13 states across India including its Contractual execution.
The average price average realization in 2014-15 has been Rs.6389/ sqft (decline of 2.2% over previous
year) with a total collection of Rs.20950 million.
DuPont Analysis
DLF Limited
PBIDT/Sales (%) The company recorded an increase of around 29% in the year 2011. This was primarily
due to a higher sale of residential and commercial value complexes that were valued at 6,658 crores.
Across the years from 2010-15, the ratio has been fairly high with an average of 95.79 thus depicting a
high contribution of the company.
PAT/PBDIT - During 2010-11, a significant challenge to the growth performance of the Indian economy
was rising food inflation, which spilled over to affect the rest of the economy and to push up raw
material costs in the Indian economy. The company continued its focus on consolidation, stable growth
and risk management thus leading to a 6.5% increase. Compared to its competitors, Sobha and Prestige,
the profitability has not been very good across the years.
Sales/Net Assets - The ratio remained constant as there was no substantial increase in the sale figures.
This was due to delays in project approvals, resulting in a slowdown in volume growth. Thus the Net
Assets do not seem to be properly utilised across the years under review.
PBDIT/Net Assets Similar to the above ratio, the assets have not contributed significantly to the profits
with an average of 8.5%. The company should better utilise its resources and assets to contribute better
to overall profits.
Net assets/Net Worth - The Company has been in a healthy position with Net Worth being high of about
29,194 crores, witnessing an increase of over 1,666 crores over FY 13 and 29,168 crores in 2014-15.
ROE Return on Equity has been good with an average of 5.95%, thus reflecting the company as a
lucrative option for investors.
Sobha Limited
PBIDT/Net Sales - The Companys net sales increased from 1,117.28 crores to 2,394.13 crores from
2010 to 2015. The industry average is 77.6 whereas Sobha Developers has displayed an average of
25.30.
PAT/PBDIT The average across the years is 45.32, contribution being way better than the average of
DLF Ltd of 32.22. The Company has shown a positive trend in terms of profitability.
Sales/Net Assets Increased by 28.57% due to an increase in the net profits of the company from
136.66 crores to 199.09 crores in 2010-15. The net assets have been used very efficiently in the
company. It has performed way better than DLF in terms of this ratio.
PBDIT/Net Assets This ratio depicts the contribution of net assets in terms of profitability. Similar to
the Sales/Net Assets Ratio the ratio shows a high contribution towards profitability by efficient usage of
Net Assets.
Net Assets/Net Worth The ratio is lesser as compared to its competitors DLF and Prestige. Thus, it
does not reflect as healthy a position as its competitors. However, the company has sufficient assets to
fulfil the companys financial obligations.
Return on Equity The Company displays an attractive Return on Equity ratio with an average of 9.66%,
better than DLF. This shows its a prospective and lucrative investment for investors.
Trend Analysis
The Indian real estate sector was in a strong position in first half of 2011 witnessing recovery from the global
financial crisis across its product segments and micro markets. However, the sector faced a challenging
environment in 2012. Over-supply
supply coupled with pricing, lack of sustained opera
operations
tions and policy inertia was the
main concern in some areas. Continuing the trend, 2013 was not favourable for the sector. The investors and the
end users shared a cautious approach. The tight credit policy further made it difficult for the developers to raise
r
debt from banks. Adding on to the woes, the cash flows were adversely affected due to slow off-takes
off
and
increased input costs. The year 2014 was plagued by inflation, higher interest rates and higher weight-age
weight
for
loans to companies. At the same time,
e, positive sentiments prevailing post General Elections are motivated the
economy to perform better and push the limits. Fiscal 2015 was a period of recovery and positive changes for the
Indian economy.
BUSINESS CYCLE
Indias office
ice space absorption during 2015 stood at 35 million sq ft the second-highest
highest figure in the
th countrys
history after 2011.
While pan-India
India vacancy still stands at 16%, realistic vacancy actually stands around 88-9% the total vacant
supply is not always relevant
elevant for corporate occupiers. This is because most of them do not consider Grade-A
Grade
buildings that are strata-sold
sold or located in areas with inherent disadvantages and connectivity issues, or have
been vacated from recent occupier exits and no longer matc
match Grade-A requirements.
Cities such as Pune, Bangalore, Hyderabad and Chennai have a vacancy rate of just 55-10%,
10%, prompting the need for
fresh supply to meet growing demand. Given the low supply and continued demand for commercial spaces,
corporate occupierss will continue to firm up their expansion plans. The challenges of demand-supply
demand
mismatch
and high unsold inventory across the country remain, but the signs are nevertheless encouraging cities like
Mumbai, Bangalore, Pune and Hyderabad are slowly but su
surely
rely crawling back to positive growth
Everyone has a strong view on Indias residential real estate market. Currently, most people expect prices to
crash. The prices may fall but there cannot be an overnight collapse. Real estate is going through a painful
business down-cycle, which will also end at some point of time. The reason why the real estate market wont
collapse are:
1. Too big to fail: Politicians, real-estate
estate developers, banks, NBFCs have too many vested interest in real estate to
let it fall. A lot of things are at stake when it com
comes
es to real estate. The industry may see a setback as was in USA at
the time of Lehman crisis i.e. a few builders may bail out of the situation but overall too much is at stake to let the
industry fall, government will have some policies to revive this indu
industry
stry and that is reflected in this years budget
as it has a positive effect on real estate.
2. The fall has already begun: The Reserve Bank of Indias (RBI) all
all-India
India Residential Property Price Index (Base =
FY09-10)
10) shows that the dizzying ascent in home prices is already reversing at a rapid pace. In two years, the rise
in home prices has fallen to 4% in 3QFY15 from a high of 28% in 3QFY13. In fact, 3QFY15 saw declines in home
prices in cities like Mumbai (-3%)
3%) and Chandigarh ((-8%). This might not be much,
h, but real estate is an illiquid asset
where prices can take years to correct. This process has just begun and will surely at some point end.
3. The India Growth Story: A huge part of India has yet to be developed and with Modi government working
towards the goal of smart cities. This will create demand for infrastructure over a longer term. India is moving
towards economic development and real estate is an integral part of it. Weve seen it before: The IT boom in
Bangalore and Hyderabad, the BFSI boom in Mumbai, the decentralization of Central Business Districts and
expansion of peripheries (Navi Mumbai, NOIDA, Gurgaon). This cycle will take place again when economic growth
picks up and when it does, we will see new infrastructure, new cities and the dema
demand
nd created by these will have a
positive impact on the industry.
Interest deduction limit under Sec 80EE increased from Rs.1 lakh to Rs.1.5 lakh for first-time home buyers
(applicable only on loans not exceeding Rs.35 lakh for houses costing below Rs.50 lakh and sanctioned
during April 1, 2016, to March 31, 2017).
Service tax exemption on construction of affordable houses up to 60 square metres (646 sqft) under any
central or state government scheme, including public-private partnerships (PPPs)
Phasing out of deductions allowed on capital expenditure (other than land, goodwill and financial assets)
under Sec 35AD from 150% to 100% with effect from April 1, 2017, for affordable housing projects
Revival of national land record digitisation scheme with a funding of Rs.1.5 billion
All these amendments will help to boost the sales of affordable houses across the country, especially in tier 2 and
tier 3 cities. Digitization of land records will aid transparency in the real estate sector and help tap foreign capital
inflows in the medium to long term.
Future Trends
A host of factors are emerging as key trends in the Real Estate Market including high energy prices, climate
change and government regulation. Technology continues to disrupt the real estate agenda and the impact will be
much greater by 2020. The consumers tedious task of house hunting has been simplified by the developers who
are now keen on adopting modern technologies.
Among other tools, 4D property viewing backed with exhaustive information and buying options at a click of the
button will boost the business. Apart from building the property, developers are now making the homes more
compact, well equipped, ease of maintenance and lower capital values.
While urbanization creates a huge demand for housing, planning and infrastructure are posing great challenges.
Basic amenities like roads, power and water pose as a big problem to the growing aspirations of the city. Investors
have been quite apprehensive to invest in India due to ambiguous government policies and regulations.
Due to the mounting pressure on the government, they have now come up with the concept of 100 smart cities.
The growth of intelligent smart buildings and smart homes in India empowered with rising disposable incomes,
the burgeoning middle class of the country is driving the demand for improved workplaces and homes that can
provide them opportunities to lead better lifestyles, while addressing their need for sustainability, efficiency and
functionality.
We can anticipate that the internet of things will transform the industry wherein every electronic device in the
will interact with each other and customize itself to every individuals need. Developers are now working on
projects catering to the ever changing technology.
Innovating and incorporating new value-added solutions in project portfolios is increasingly emerging as a crucial
directive for us to allure new buyers and tenants, while also retaining the existing ones.
Conclusion
After analysing the industry, we came to conclusion that the industry is not very attractive presently. Unstable
government policies, indecisiveness and inconsistencies in issues related to tax, lack of regulation by the
government are some of the threats the industry faces. Investments into the real estate sector in 2015 were close
to $8 billion or Rs 53,000 crore, are poised for a seven-year high even when the sector is not in a good shape.
Since the government has allowed 100% investment through FDIs, this opens up a path for foreign investors to
enter the Indian Real Estate market and tap profits.
The world financial crisis significantly impacted the real estate sector. The real estate market contracted in both
volume and value terms. Real estate developers had trouble dealing with liquidity crunch, which forced them to
adopt innovative business strategies. Lately, we can see that focus is gradually shifting from larger high value
units to smaller low-priced units, with volumes driving revenue growth. We propose the concept of affordable
housing to deal with the same. It can gain future prominence and is likely to emerge a key growth driver for the
Indian construction industry, offering big business opportunity for developers.
In the long term, it is expected that the Indian Government will take initiatives to boost the real estate industry
through higher infrastructure spending. Factors such as favourable demographics, income levels and growing
urbanization will continue to drive the long-term growth in this industry. In the short term, however sustained
increase in residential property prices, along with further tightening of the monetary policy, would lead to higher
borrowing costs and carries the potential of having an adverse impact on demand.
Thus, we can conclude that over the past decade, the Indian real estate market has become more organized and
structured, providing better investment opportunities.
References
http://content.knightfrank.com/research/659/documents/en/india-real-estate-jan-to-jun-20153086.pdf
http://www.ap.jll.com/asia-pacific/en-gb/Research/IndiaPaper-ModiFirstYr-Final.pdf?39e3fae0-bf56441f-b897-17c27ae0ff60
http://www.moneycontrol.com/news/real-estate/the-basics-of-real-time-real-estatemarketing_673579.html#anchore_top_strip
www.dlf.com
www.sobha.com
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www.moneycontrol.com
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