Profits slip at DLF, commodity costs a worry

DLF said a rapidly-growing economy helped its commercial office and retail segments and it expected housing projects to yield good returns. The firm is concerned though with the recent sharp increase in commodity prices that could bump up construction costs.

"In the near term, the company expects the current pricing trends to help sustain the margins, but it is keeping a watchful eye on the future trends and its impact," DLF said in a statement.

Property prices in major Indian cities like Mumbai and Delhi have more than doubled over the past 18 months, spurred by rising incomes and a stock market rally.

While sales volumes are already down a third compared to the March quarter, developers have been undeterred because of continuing high sales prices.

But rising land prices are adding to developers' costs. Land now accounts for two-thirds of total costs in some projects, compared with an average of 40 to 50 percent previously.

As a result, to get their returns on the high land prices, developers have to push up prices for housing units.

In June, Lodha, one of India's top developers by sales, signed India's costliest land deal, agreeing to pay $850 million for a plot in central Mumbai. Last month, Indiabulls Real Estate won two plots at land auctions in Mumbai for $430 million, or twice the asking rate.

India's central bank, which last week raised interest rates for the sixth time this year, also tightened loan rules by asking mortgage firms to limit loans to 80 percent of the asset value.

New Delhi-based DLF said consolidated net profit fell to 4.18 billion rupees ($94 million) in its fiscal second-quarter ended September from 4.40 billion rupees a year ago.

Revenue rose to 25.20 billion rupees from 18.10 billion in the year-ago quarter.

Ahead of the results, shares in DLF, which is valued at about $14 billion, closed 0.1 percent lower in a Mumbai market that fell 0.3 percent.

The stock is little changed this year, underperforming a near-20 percent gain in the main index. The real estate sector index is down 1.6 percent in 2010.