6 May 2015
4QFY15 Results Update | Sector:
Consumer
V-Guard Industries
BSE SENSEX
27,440
Bloomberg
Equity Shares (m)
M.Cap. (INR b) / (USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val (INR M)/Vol ‘000
Free float (%)
Financials & Valuation (INR b)
Y/E MAR
Sales
EBITDA
NP
EPS (INR)
EPS Gr. (%)
RoE (%)
RoCE (%)
Payout %
Valuations
P/E (x)
P/BV (x)
EV/EBITDA
Dividend
EV/Sales (x)
41.7
7.8
22.6
0.5
1.7
27.8
6.4
17.2
0.7
1.5
20.4
5.2
13.4
1.1
1.2
2015 2016E 2017E
17.5
1.3
0.7
23.6
0.4
20.3
28.0
22.1
20.1
1.7
1.1
35.4
50.1
153.3
25.4
34.9
22.9
23.7
2.1
1.4
48.3
36.4
189.5
28.2
39.0
25.2
S&P CNX
8,325
VGRD IN
29.9
29.4/0.5
1,197/403
8/9/66
47/57
33.9
CMP: INR985
TP: INR950 (-4%)
Neutral
Results below estimates led by de-growth in cables and pumps
V-Guard Industries (VGRD) reported revenue of INR4.4b (est. INR5.1b) in 4QFY15 as
against INR4.2b in 4QFY14 marking a YoY growth of 4.5%. Electronics segment grew
13% YoY from INR1,161m in 4QFY14 to INR1.3b in 4QFY15. Electrical segment saw flat
growth YoY with revenues at INR2.9b. South market de-grew 2% YoY to INR2.9b while
Non-south market grew ~19% YoY in 4QFY15 to INR1.5b. LT cables and pumps growth
posted negative growth of -4% and -14% respectively, while on the positive side Water
Heaters posted (led by pan-India Pebble launch) strong growth of 29.4% YoY, Fans
segment posted 42% growth YoY and Stabilizers posted robust growth of 19.5%.
Higher employee and other expenses drove 40bp EBITDA margins decline:
Gross
margins improved 130bp YoY to 25.8% led by better product mix and despite
inventory losses due to lower copper prices. EBITDA was flat YoY at INR353m in
4QFY15 (est.INR464m). EBITDA margins declined 40bps to 8.0% in 4QFY15 (est 9%) led
by higher employee and other expenses. (Higher 140bp and 60bp YoY respectively).
Employee and other expenses were higher as the company appointed franchisee
based after sales service while at the same time maintaining the 500 employees who
were involved earlier in the in-house service division. Going forward, management
plans to redeploy these employees in other roles, thus driving employee costs to
revenues back to lower levels of 5%. Consequently, PAT declined 2% to INR201m (est.
INR273) in 4QFY15.
Valuation and view:
Management has guided for 15% revenue growth for FY16 along
with EBITDA margin guidance in the 8-8.5% range. We cut our EPS forecast for FY15 /
FY16 / FY17 by 14%, 8% and 13% respectively to factor lower growth in South markets
and lower margins. We value VGRD at 20x FY17E EPS, higher than its historic five-year
average multiple of 17.2x and at a 15% discount to Havell’s multiple of 24x FY17E, and
value the stock at INR950. Maintain
Neutral
given downside of 4%.
BV/Sh (INR) 126.0
Estimate change
TP change
Rating change
14%
14%
Niket Shah
(Niket.Shah@MotilalOswal.com); +91 22 3982 5426
Atul Mehra
(Atul.Mehra@MotilalOswal.com); +91 22 3982 5417
Investors are advised to refer through disclosures made at the end of the Research Report.
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.

V-Guard Industries
Results below estimates
VGRD reported revenue of INR4.4b (est. INR5.1b) in 4QFY15 as against INR4.2b
in 4QFY14 marking a YoY growth of 4.5%.
Electronics segment grew 13% YoY from INR1,161m in 4QFY14 to INR1.3b in
4QFY15. Electrical/Electromechanical segment saw flat growth YoY with
revenues at INR2.9b.
Exhibit 1: Segment wise revenue break-up (INR m)
Segments
Electronics
Electrical / Electromechanical
Others
Total
4QFY15
1,309
2,974
133
4,416
4QFY14
YoY
Growth (%)
1,161
12.7
2,973
90
4,224
0.0
47.7
4.5
3QFY15
QoQ
Growth (%)
1,031
26.9
2,761
161
7.7
-17.5
3,954
11.7
Source: Company, MOSL
Exhibit 2: Quarterly revenue trend (INR m)
48.2%
32.8%
Total Sales (INR m)
41.5%
28.0%
YoY Growth
29.1%
11.5% 17.0%
38.5%
4,777 4,313
12.0%
4,416
4,082
6.6%
3,529 4,224
3,954
3,340
3,190 3,135 3,490 3,787
4.5%
1.1%
Source: Company, MOSL
Stabilizers and Water heater post strong growth, Pumps / Wires subdued
LT cables and pumps growth posted negative growth of -4% and -14%
respectively, while on the positive side Water Heaters posted (led by pan-India
Pebble launch) strong growth of 29.4% YoY, Fans segment posted 42% growth
YoY and Stabilizers posted robust growth of 19.5%.
Increase in water levels in past few years due to above normal rainfall has led to
subdued demand for pumps in key states like Karnataka and Kerala which
together contribute ~45% of the pumps revenues.
Exhibit 3: Product wise revenue break-up (INR m)
Segments (INR mn)
Stabilizers
UPS (Digital + Standalone)
Pumps
Cables & Wires (PVC + LT)
Water Heaters (Electric + Solar)
Fan
Others
Total sales
4QFY15
795
513
619
1,523
317
494
154
4,415
4QFY14
665
496
720
1,584
245
390
124
4,224
Growth%
19.5
3.4
-14.0
-3.9
29.4
26.7
24.2
4.5
3QFY15
684
348
373
1,334
863
228
123
3,953
Growth%
16.2
47.4
66.0
14.2
-63.3
116.7
25.2
11.7
Source: Company, MOSL
6 May 2015
2

V-Guard Industries
South market revenues de-grow 2%, Non-South growth at 19%
South market de-grew 2% YoY to INR2.9b while Non-south market grew ~19%
YoY in 4QFY15 to INR1.5b.
Revenue contribution from South market now stands at 67% while Non-south
market contribution stands at 33%.
Management highlighted that it is gradually reducing the discount difference
between South and Non-South markets, (pricing parity achieved in house wire
and cable segments, with other segments expected to follow).
We believe narrowing down of discount difference would eventually result in
superior aggregate margins for the company.
Exhibit 5: Non south contribution continues to increase
South (%)
28
22
24
24
31
28
Non south (%)
30
29
35
33
32
33
Exhibit 4: Geography wise revenue break up (INR m)
South
2,764
2,400
2,8762,894
2,478
2,431
916
928
693 879
1,290
Non south
3,140
2,960
3,016
2,940 2,710
2,496
1,670
1,4201,2501,490
1,251
1,073
964
72
78
76
76
69
72
70
71
65
67
68
67
Source: Company, MOSL
Source: Company, MOSL
Higher employee and other expenses drove 40bp EBITDA margins decline
Gross margins improved 130bp YoY to 25.8% led by better product mix and
despite inventory losses due to lower copper prices.
EBITDA was flat YoY at INR353m in 4QFY15 (est.INR464m). EBITDA margins
declined 40bps to 8.0% in 4QFY15 (est 9%) led by higher employee and other
expenses. (Higher 140bp and 60bp YoY respectively).
Employee and other expenses were higher as the company appointed
franchisee based after sales service while at the same time maintaining the 500
employees who were involved earlier in the in-house service division.
Going forward, management plans to redeploy these employees in other roles,
thus driving employee costs to revenues back to lower levels of 5%.
Consequently, PAT declined 2% to INR201m (est. INR273) in 4QFY15.
Exhibit 7: PAT trend (INR m)
162.9%
8.0%
67.3%
23.2%
PAT (INR m)
-14.6%
YoY Growth
129.1%
14.2%
-19.4%
26.1%
32.3%
-2.0%
-47.3%
Exhibit 6: EBITDA margins trend (INR m)
10.7%
9.6%
EBITDA (INR m)
7.4%
7.6%
EBITDA margins
8.1% 8.3% 8.4% 8.5% 8.3%
5.5%
343 300
257
5.3%
309 271 291
199
354 404 356
217
353
-53.4%
207 180 153 89 176 145 175 205 223 192 92 201
Source: Company, MOSL
6 May 2015
Source: Company, MOSL
3

V-Guard Industries
FY15 A&P spends at 3.9% of sales
A&P spend during the quarter declined 60bp YoY, however from a full year
perspective A&P spends increased from 3.8% to 3.9% YoY.
However management indicated that if demand continues to remain weak then
A&P spend will be reduced as against aggressive advertising.
70% of ad spend was ATL (Above the Line).
Exhibit 9: Annual ad spend trend (INR m)
Ad spends
5.1
5.1
3.8
4.2
% of sales
4.5
3.8
3.9
Exhibit 8: Quarterly A&P spend trend (INR m)
Ad spends
4.6
3.6
2.1
116
160
66
238 215
6.3
5.3
3.3
110
180
3.6
144
4.6
3.4
220
142
3.3
194
4.9
3.0
134
% of revenues
162
FY09
Source: Company, MOSL
231
FY10
277
FY11
408
FY12
617
FY13
582
FY14
689
FY15
Source: Company, MOSL
Working capital improves YoY to 70 days
Working capital days improved by 6 days YoY from 76 days in 4QFY14 to 70 days
in 4QFY15 primarily due to reduction in inventory days from 82 days to 74 days.
Management highlighted that it has hired an external consultant (Accenture) to
further improve supply chain for the company, which is expected to further
improve inventory days in the coming years.
Going forward, management targets to improve working capital days by another
15 days over the next three years.
Exhibit 10: Balance sheet and key ratios
Balance sheet snapshot
Net worth
Working Capital
Term Loan
Total Debt
Acceptances
Fixed assets
Key ratios
Inventory (days)
Debtor (days)
Creditors (days)
Working capital turnover (days)
4QFY15
3777
367
310
677
969
1636
4QFY15
74
51
55
70
4QFY14
3190
774
310
1084
1013
1697
4QFY14
82
51
57
76
3QFY15
3717
661
335
996
731
1639
3QFY15
81
41
44
77
Source: Company, MOSL
6 May 2015
4

V-Guard Industries
15% revenue growth guidance for FY16; margin guidance at 8% to 8.5%
Management has guided for 15% revenue growth for FY16 along with EBITDA
margin guidance in the 8-8.5% range.
We cut our FY15, FY16 and FY17 earnings estimates by 14%, 8% and 13%
respectively to reflect weak near term demand.
Other conference call highlights
VGRD has reached 80% capacity utilization in its cable business and is confident
of 100% utilization over next two years. Over the next two years, management
plans to expand its capacity by adding a third plant at a capex of INR250m.
In the fans segment, margins stood at 2% in FY15 as against -1.4% in FY14
despite investments of 4% in A&P in FY15 as against 0% in FY14.
South market was the major focus area for fans for VGRD. Earlier VGRD was
selling lower margin and lower priced products. However, with a view to
penetrate this segment, the company started to focus on premium fans.
Consequently, from <10%, premium fans now comprise 40% of sales.
In the pumps segment, management is looking at reviving growth through
geographic (focus on Telangana, AP, Non-South markets) as well as product
diversification. (Introduction of >7.5 HP pumps). The company has also hired a
senior resource for this segment.
VGRD will not be looking at entering the luminaries business.
Loans and advances were higher during the year as VGRD supported its battery
vendor (which set up a plant in Bangalore), and also supported its switchgear
supplier (for setting up new facilities) through advances. Management guides
that it expects to recover the advances in FY16.
Non-South EBITDA margins stood at ~2% in FY15. Higher employee cost – 6% of
revenues vs 2% in South market, 2-3%lower gross margins and lesser scale as
compared to South markets are key reasons for lower margins.
VGRD is working with Amazon and Flipkart to narrow own pricing difference
(implement Market operating price (MOP)) between online and offline channels.
6 May 2015
5

V-Guard Industries
Valuation and View
We value VGRD at 20x FY17E EPS, higher than its historic 5 year average multiple of
17.2x and at a 15% discount to Havell’s multiple of 24x FY17E, which we believe is
justified considering:
Strong return ratios
: V-Guard derives 57% of revenues through outsourcing
model thereby helping to keep business model asset light and enabling the
company to focus on branding. Outsourcing model leads to higher ROCE with
overall corporate RoCE of 43% for FY17E and a debt free balance sheet; ROCE
for stabilizers currently stand at 106%, pumps at 37%, water heaters at 51%,
UPS and digital UPS in the range of 30-34%. Higher capital efficiency lends
significant scalability to the business.
Significant potential for growth and margin expansion:
V-Guard has over
the past five years significantly expanded its presence in non-south markets with
distributors in non south markets standing at 220 higher than south of 187
distributors. However, revenue per distributor in non-south markets stands at
INR20-25m as against INR55-60m in south markets, implying significant
scalability from non-south markets. Distributor margins and discounts in non
south margins are currently higher than south markets, which we expect to
decline going forward, thus improving margins.
We believe the following factors can pose risks to our estimates:
Poor summer season can affect growth:
Around 70% of the company's
products are related to the summer season. Hence, in case of a poor summer,
demand for products could decline thereby affecting growth.
Highly dependent on South India:
V-Guard earns 70% of its revenue from
the Southern region. Though its brand recall is high in these markets, any
unforeseen circumstances like poor rainfall might affect its growth.
We value VGRD at 20x FY17E EPS, higher than its historic five-year average multiple
of 15.5x and at a 15% discount to Havell’s multiple of 24x FY17E, and value the stock
at INR950. Maintain Neutral given downside of 4%.
Exhibit 11: Price to earnings (one year forward)
40
30
20
10
0
17.2
27.5
P/E (x)
5 Yrs Avg(x)
Exhibit 12: Price to book (one year forward)
10.0
7.5
5.0
2.5
0.0
3.8
P/B (x)
5 Yrs Avg(x)
6.4
Source: Company, MOSL
Source: Company, MOSL
6 May 2015
6

V-Guard Industries
Story in charts
Exhibit 13: V-Guard's ad spends highest among peers
Exhibit 14: Revenue/ Distribution pan India trend (m)
South
Non South
Pan India average 75.7
71.6
55.9
35.2
25.8
4.3
FY08
39.1
26.1
16.7
9.3
36.9
23.0
20.6
57.8
49.1
45.1
37.8
20.7
33.1
21.9
4.8
FY09
FY10
FY11
FY12
FY13
FY14
Source: Company, MOSL
Source: Company, MOSL
Exhibit 15: Distribution network pan India trend
South
Non south
167
134
220
187
Exhibit 16: V-Guard adopts asset light business model
In House
80%
60%
40%
20%
0%
Outsourced
78
34
90
59
100
77
10397
110
95
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14
Source: Company, MOSL
Source: Company, MOSL
Exhibit 17: Annual sales trend
Total Sales (INR m)
60
43
33
41
15,176 17,459
12
15
20,097
15
18
YoY Growth
23,747
Exhibit 18: Annual PAT trend
PAT (INR m)
57
27
255
400
508
24
629
12
701
YoY Growth
50
36
1
707
47
4,541 7,263 9,646 13,602
1,062 1,448
Source: Company, MOSL
Source: Company, MOSL
6 May 2015
7

V-Guard Industries
Corporate profile
Company description
Established in 1977, V-Guard Industries is a dominant
player in south India in the light electrical industry.
Beginning with its flagship product, voltage stabilizers (in
which it is the market leader), the company has, over
last 10 years, expanded its product profile to include
PVC insulated cables, LT power cables, Fans, Geysers,
Solar water heaters, Pumps, UPS and Inverters. The
company, which went public in 2008 and has seen
revenue CAGR of 37% and a PAT CAGR of 32% in the
past five years.
Exhibit 20: Shareholding pattern (%)
Dec-14
Promoter
DII
FII
Others
66.1
4.4
9.1
20.5
Sep-14
66.2
4.4
19.0
10.4
Dec-13
65.5
2.2
18.5
13.8
Exhibit 19: Sensex rebased
V-Guard Inds.
1,200
850
500
150
Sensex - Rebased
Exhibit 21: Top holders
Holder Name
Nalanda India Equity Fund Ltd
Steadview Capital Mauritus Ltd
Massachusetts Institute of Technology - SCM
Nalanda India Fund Ltd
LTR Focus Fund
%
Holding
4.4
3.7
3.2
2.6
2.0
Note: FII Includes depository receipts
Exhibit 22: Top management
Name
Kochouseph Chittilappilly
Cherian N Punnoose
Mithun K Chittilappilly
Designation
Chairman
Vice Chairman
Managing Director
Exhibit 23: Directors
Name
Kochouseph Chittilappilly
Cherian N Punnoose*
Mithun K Chittilappilly
A K Nair*
C J George*
*Independent
Name
Ramachandran Venkataraman
Joshna Mithun
Ullas K Kamath*
Jayasree K
Exhibit 24: Auditors
Name
S R Batliboi & Associates LLP
Ajeesh & Associates
Type
Statutory
Cost Auditor
Exhibit 25: MOSL forecast v/s consensus
EPS (INR)
FY16
FY17
MOSL forecast
35.4
48.3
Consensus
forecast
36.4
50.1
Variation (%)
-2.8
-3.6
6 May 2015
8

V-Guard Industries
Financials and valuations
Standalone - Income Statement
Y/E March
Net Sales
Change (%)
Total Expenditure
% of Sales
EBITDA
Margin (%)
Depreciation
EBIT
Int. and Finance Charges
Other Income - Rec.
PBT bef. EO Exp.
PBT after EO Exp.
Current Tax
Tax Rate (%)
Reported PAT
PAT Adj for EO items
Change (%)
Margin (%)
FY10
4,541
43.3
4,037
88.9
504
11.1
71
432
51
14
395
395
127
35.5
255
255
46.8
5.6
FY11
7,263
60.0
6,536
90.0
728
10.0
79
648
113
20
555
591
161
27.9
426
400
57.1
5.5
FY12
9,646
32.8
8,711
90.3
936
9.7
97
839
170
24
692
692
202
26.6
508
508
27.0
5.3
FY13
13,602
41.0
12,503
91.9
1,099
8.1
114
985
200
36
821
821
156
23.4
629
629
23.7
4.6
FY14
15,176
11.6
13,950
91.9
1,225
8.1
120
1,105
211
48
943
943
225
25.6
701
701
11.5
4.6
FY15E
17,459
15.0
16,129
92.4
1,330
7.6
154
1,176
206
45
1,014
1,014
307
30.3
707
707
0.8
4.1
(INR Million)
FY16E
20,097
15.1
18,389
91.5
1,708
8.5
151
1,558
153
70
1,475
1,475
413
28.0
1,062
1,062
50.1
5.3
FY17E
23,747
18.2
21,610
91.0
2,137
9.0
166
1,972
44
84
2,011
2,011
563
28.0
1,448
1,448
36.4
6.1
Standalone - Balance Sheet
Y/E March
Equity Share Capital
Total Reserves
Net Worth
Deferred Liabilities
Total Loans
Capital Employed
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Capital WIP
Curr. Assets, Loans&Adv.
Inventory
Account Receivables
Cash and Bank Balance
Loans and Advances
Curr. Liability & Prov.
Account Payables
Provisions
Net Current Assets
Appl. of Funds
E: MOSL Estimates
FY10
298
1,116
1,415
57
805
2,277
1,379
256
1,123
29
1,904
985
756
74
89
824
690
134
1,080
2,277
FY11
298
1,421
1,720
61
1,394
3,175
1,462
324
1,137
14
2,898
1,424
1,231
71
172
874
712
162
2,023
3,175
FY12
298
1,808
2,106
43
1,091
3,240
1,625
395
1,230
111
3,365
1,574
1,478
34
279
1,466
1,222
245
1,899
3,240
FY13
298
2,315
2,613
79
1,650
4,343
1,888
506
1,382
88
5,079
2,486
1,988
149
455
2,205
1,959
246
2,873
4,343
FY14
298
2,886
3,184
95
1,084
4,363
2,280
618
1,662
35
5,053
2,525
2,121
28
379
2,386
2,069
317
2,667
4,363
FY15E
300
3,478
3,777
92
677
4,547
2,409
773
1,636
0
5,612
2,609
2,437
22
544
2,702
1,934
768
2,911
4,547
(INR Million)
FY16E
300
4,296
4,596
92
277
4,965
2,609
923
1,685
100
6,869
3,416
2,478
267
708
3,689
3,215
474
3,179
4,965
FY17E
300
5,379
5,679
92
0
5,771
2,909
1,089
1,820
119
8,522
4,048
2,863
692
920
4,690
4,048
642
3,832
5,771
6 May 2015
9

V-Guard Industries
Financials and valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout (%)
Valuation (x)
P/E
Cash P/E
P/BV
EV/Sales
EV/EBITDA
Dividend Yield (%)
Return Ratios (%)
RoE
RoCE
Working Capital Ratios
Asset Turnover (x)
Inventory (Days)
Debtor (Days)
Creditor (Days)
Working Capital Turnover (Days)
FY10
8.5
10.9
47.4
3.0
41.0
FY11
13.4
16.1
57.6
3.5
28.5
FY12
17.0
20.3
70.6
3.5
23.9
FY13
21.1
24.9
87.6
3.5
19.3
FY14
23.5
27.5
106.7
3.5
17.3
FY15E
23.6
28.7
126.0
4.5
22.1
FY16E
35.4
40.4
153.3
7.0
22.9
FY17E
48.3
53.8
189.5
10.5
25.2
115.4
90.1
20.8
6.6
59.8
0.3
73.5
61.3
17.1
4.2
42.2
0.4
57.8
48.6
14.0
3.2
32.6
0.4
46.8
39.6
11.3
2.3
28.1
0.4
41.9
35.8
9.2
2.0
24.9
0.4
41.7
34.3
7.8
1.7
22.6
0.5
27.8
24.4
6.4
1.5
17.2
0.7
20.4
18.3
5.2
1.2
13.4
1.1
19.0
23.8
25.5
25.0
26.6
27.3
26.6
27.4
24.2
27.0
20.3
28.0
25.4
34.9
28.2
39.0
2.0
79
60
55
81
2.3
72
61
36
98
3.0
60
55
46
71
3.1
67
52
53
73
3.5
61
50
50
63
3.8
55
50
40
60
4.0
62
44
58
53
4.1
62
43
62
48
Leverage Ratio (x)
Current Ratio
Debt/Equity
2.3
0.6
3.3
0.8
2.3
0.5
2.3
0.6
2.1
0.3
2.1
0.2
1.9
0.1
1.8
0.0
Standalone - Cash Flow Statement
Y/E March
Oper. Profit/(Loss) before Tax
Depreciation
Interest and finance charges
Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
EO expense
CF from Operating incl EO
(inc)/dec in FA
(Pur)/Sale of Invest.
Others
CF from investments
(Inc)/Dec in Debt
Interest Paid
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
FY10
395
71
51
125
-584
-192
3
-190
-253
68
4
-181
541
-50
-87
404
33
41
74
FY11
591
79
112
181
-946
-344
3
-341
-86
46
3
-37
593
-113
-104
375
-3
74
71
FY12
692
97
162
157
30
823
14
837
-293
0
15
-277
-310
-166
-121
-597
-38
71
33
FY13
822
114
180
256
-772
88
17
105
-256
0
3
-254
575
-190
-121
265
116
34
150
FY14
943
120
191
189
-23
1,042
66
1,108
-324
0
44
-280
-591
-236
-122
-950
-122
149
27
FY15E
1,014
154
206
307
-212
856
0
856
-94
0
0
-94
-405
-206
-156
-768
-6
28
22
FY16E
1,475
151
153
413
-24
1,341
0
1,341
-300
0
0
-300
-400
-153
-243
-796
245
22
267
FY17E
2,011
166
44
563
-228
1,429
0
1,429
-318
0
0
-318
-277
-44
-365
-686
425
267
692
6 May 2015
10

V-Guard Industries
NOTES
6 May 2015
11

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