Britannia Industries
BSE SENSEX
28,339
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm/ Vol m
Free float (%)
S&P CNX
8,792
BRIT IN
120.0
385.8 / 5.7
3435 / 2421
6/-5/2
615
49.3
14 February 2017
3QFY17 Results Update | Sector: Consumer
CMP: INR3,216
TP: INR3,775(+17%)
Buy
Remarkable growth, given high base and demonetization effect
Financials & Valuations (INR b)
Y/E Mar
2016 2017E 2018E
Net Sales
83.3
90.0 102.6
EBITDA
11.5
11.4
13.2
PAT
8.4
8.6
10.0
EPS (INR)
70.1
71.9
83.0
Gr. (%)
46.3
2.6
15.5
BV/Sh (INR)
147.2 187.9 237.1
RoE (%)
55.9
42.9
39.1
RoCE (%)
46.0
35.0
32.2
P/E (x)
45.9
44.7
38.7
P/BV (x)
21.8
17.1
13.6
Estimate change
TP change
Rating change
Britannia’s 3QFY17 consolidated net sales grew 5.6% YoY
(our estimate: 6%
decline) to INR22.6b. Base volume growth was 2% (our estimate: 5% decline)
while overall volume growth was flattish. We believe this is remarkable, given
that volumes had increased 13% YoY in the base quarter (3QFY16).
Consolidated EBITDA was up 0.3% (our estimate: 19.1% decline) to INR2.95b
while adjusted PAT grew 4.6% (our estimate: 19.5% decline) to INR2.2b.
Consolidated gross margin contracted 230bp YoY
to 37.3%. However, with
lower other expenses (-130bp YoY to 20.4%) and staff costs (-30bp), EBITDA
margin contraction was restricted to 70bp YoY (13% v/s our estimate of 12.3%).
EBITDA remained flat (our estimate: 19.1% decline) at INR3b. Adjusted PAT
grew 4.6% YoY (our estimate: 19.5% decline) to INR2.2b.
Standalone performance:
Sales, EBITDA and adjusted PAT grew 6.3%, declined
0.6% and grew 7.1% YoY, respectively. Gross margin (37.1%) contracted 230bp
YoY while operating margin (12.9%) declined 90bp YoY.
Subsidiaries’ performance:
Sales, EBITDA and PAT posted 2% decline, 12%
growth and 31% decline, respectively, pulling down consolidated numbers.
Concall highlights:
(1) Cost savings would be ~INR1.5b in FY17; in FY18, cost
savings would be 40% higher than in FY17, (2) management expects 6-7% price
increase and mid-single-digit volume growth in FY18.
Valuation and view:
We are enthused with the consistent healthy growth in a
difficult operating environment, which results in higher visibility of growth
compared to peers. Return ratios of nearly 40% are also superior to peers.
Given (a) continuing investment in R&D and its own manufacturing facilities,
(b) strategic tie-ups leveraging of its enviable and consistently improving
distribution and marketing skills, we are positive on the company finding
additional levers of growth. We retain
Buy,
with a target price of INR3,775 (39x
December 2018E EPS, 15% premium to 3-year average).
FY17
2Q
3Q
10.0
2.0
23,612 22,648
11.0
5.6
14,902 14,190
8,709
8,458
36.9
37.3
5,578
5,504
23.6
24.3
3,131
2,954
13.3
13.0
2.0
0.3
289
303
15
11
670
561
3,496
3,201
1,156
997
33.1
31.1
2,340
2,204
5.8
4.6
FY16
10.8
83,254
7.1
49,989
33,265
40.0
21,718
26.1
11,547
13.9
38.2
1,134
49
1,962
12,326
3,920
31.8
8,407
46.4
FY17E
6.3
89,979
8.1
56,427
33,553
37.3
22,122
24.6
11,431
12.7
-8.4
1,189
56
2,522
12,708
4,079
32.1
8,629
2.6
FY17 Variance
3QE
(%)
-5.0
20,158
12.4
-6.0
12,321
7,837
7.9
38.9
5,354
26.6
2,483
19.0
12.3
-19.1
337
9
549
2,686
19.2
860
32.0
1,827
20.7
-19.5
Quarterly Performance
Y/E March
Base business volume growth (%)
Net Sales
YoY Cha nge (%)
COGS
Gross Profit
Ma rgi ns (%)
Other Opera ti ng Exp
% of Sa l es
EBITDA
Ma rgi ns (%)
YoY Growth (%)
Depreci a ti on
Interes t
Other Income
PBT
Ta x
Ra te (%)
Adjusted PAT
YoY Cha nge (%)
1Q
9.0
19,411
11,587
7,824
40.3
5,102
26.3
2,722
14.0
274
7
401
2,842
906
31.9
1,936
FY16
2Q
3Q
11.0
13.0
21,277 21,444
12,717
8,560
40.2
5,492
25.8
3,068
14.4
272
15
506
3,287
1,076
32.7
2,211
12,945
8,499
39.6
5,554
25.9
2,945
13.7
281
12
481
3,134
1,027
32.8
2,107
(INR Million)
4Q
10.0
21,121
12,878
8,244
39.0
5,557
26.3
2,687
12.7
308
15
578
2,942
952
32.4
1,990
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Krishnan Sambamoorthy
(Krishnan.Sambamoorthy@MotilalOswal.com); +91 22 3982 5428
Vishal Punmiya
(Vishal.Punmiya@MotilalOswal.com); +91 22 3980 4261
E MOSL E i
1Q
10.0
21,063
8.5
12,879
8,184
38.9
5,367
25.5
2,817
13.4
3.5
279
15
739
3,263
1,071
32.8
2,192
13.2
4QE
3.0
22,657
7.3
14,455
8,202
36.2
5,673
25.0
2,529
11.2
-5.9
318
15
552
2,748
856
31.1
1,893
-4.9

Britannia Industries
Exhibit 1: Consol. volumes were flat during the quarter
BRIT's consol volume growth (%)
10
5
2
2
1
6
3
3
0
10
12
11
10
8
8
8
7
Exhibit 2: …while BRIT’s base business continued to report consistent healthy volume
growth even in difficult environment
11
BRIT's base business volume growth (%)
13
11
9
8
7
7
10
10
10
3
4
4
2
Source: Company, MOSL
Exhibit 3: Company witnessed 10% commodity cost inflation in 3QFY17
Source: Nielsen data, BRIT presentation
14 February 2017
2

Britannia Industries
Conference call highlights
Demonetization impact
Wholesale channel dependence much lower than FMCG peers.
Direct reach nearly 1.45m outlets doubled from March 2015 levels.
Volume growth was 2% in domestic base business.
Demonetization impact has not completely gone away. May take 3-6 months for
complete recovery.
Volume in 4QFY17 likely to be similar to 3QFY17.
Premium part of the business continues to grow faster.
Market share and costs
Witnessed continued market share gain.
Have Accelerated cost efficiency program
Cost savings will be around INR 1.5b this year. Next year cost savings are likely
to be 40% higher than FY17.
RM costs wheat flour costs were up by 10%, sugar by 40%, refined palm oil by
20% and milk by 19%.
Company was not able to take price increases in demonetized environment.
Have taken 5.5% price increase when inflation has been ~10%. Next 2-3 months
will take prices up in the right SKUs.
Import of wheat after has meant that material costs in South India have
stabilized a bit.
Sugar has 40% import duty. If government reduces duty then there will be some
stability. Meanwhile management thinks that sugar prices will continue to be
firm. Sugar has an 18 month crop cycle so next crop will take time.
A&P 10% down. Will increase as they see recovery.
Other expenses including A&P likely to be at ~19% of sales.
FY18 likely to witness 6-7% price increase. Management is targeting mid-single
digits
Distribution
Direct distribution expansion by 200,000 outlets a year.
Already reach 10,000 rural distributors across the country. It was 7500 at the
end of March 2016.
Hindi belt performance was good but some states were affected. E.g. UP.
However Rajasthan and Gujarat did well.
New category
New category close to being finalized.
Also evaluating a partnership for the new category with an international
company. Management may be in a position to disclose the partner in little over
a month’s time. Britannia has evaluated the company’s international facilities
and mentioned that they have differentiated products with high gross margin.
Technology, recipe and years of experience will be what the JV partner will bring
in. Britannia will bring in distribution strength and understanding of the Indian
consumer.
The management has not made a final decision on dairy. They have hiked prices
in Ghee as it wasn’t making money.
14 February 2017
3

Britannia Industries
Capex
A new manufacturing facility will come up in Maharashtra in biscuits as it was a
state where Britannia did not have its own facility. Also setting up a facility in
Nepal.
Next 18 months INR 3.5-4b capex.
Tax rate
Tax rate going forward will be around 31%.
Valuation and view
We are enthused with the consistent healthy growth in a difficult operating
environment which therefore results in higher visibility of growth compared to
peers when recovery sets in. Return Ratios of nearly 40% are also superior to
peers. With continuing investment in R&D and its own manufacturing facilities
as well as potential strategic tie ups leveraging on its enviable and consistently
improving distribution and marketing skill, we are positive on the company
finding additional levers of growth in the future.
We retain
Buy
with a target price of INR 3,775 (39x December 2018 EPS, 15%
premium to 3 year average).
Exhibit 4: We change FY18/FY19 EPS marginally
Net Sales
EBITDA
Adjusted PAT
FY17E
89,979
11,431
8,629
New
FY18E
102,645
13,192
9,962
FY19E
119,564
16,479
12,159
FY17E
88,263
11,476
8,471
Old
FY18E
104,027
13,384
9,853
FY19E
120,915
15,874
11,739
FY17E
1.9%
-0.4%
1.9%
Change
FY18E
-1.3%
-1.4%
1.1%
FY19E
-1.1%
3.8%
3.6%
Source: Company, MOSL
Exhibit 5:
Britannia
P/E (x)
PE (x)
50.0
38.0
26.0
14.0
2.0
15.0
26.8
Peak(x)
Avg(x)
45.9
39.8
Min(x)
Exhibit 6: Britannia P/E premium vs. Sensex
150
100
50
0
-50
Britannia PE Relative to Sensex PE (%)
LPA (%)
57.4
131.0
Source: Company, MOSL
Source: Company, MOSL
14 February 2017
4

Britannia Industries
Exhibit 7: Valuation Matrix of coverage universe
Company
Consumer
Asian Paints
Britannia
Colgate
Dabur*
Emami*
Godrej Consumer
GSK Consumer
Hind. Unilever
ITC
Jyothy Labs
Marico*
Nestle
Page Industries
Parag Milk Foods
Pidilite Inds.
P&G Hygiene
Radico Khaitan
United Spirits
Retail
Jubilant Foodworks
Shopper's Stop
Titan Company
Reco
Neutral
Buy
Buy
Neutral
Buy
Neutral
Neutral
Neutral
Buy
Neutral
Buy
Neutral
Buy
Neutral
Neutral
Buy
Not Rated
Buy
Buy
Neutral
Neutral
Price
(INR)
980
3,220
880
269
1,135
1,601
5,100
848
271
352
268
6,210
14,353
265
670
7,015
125
778
2,355
990
319
Mkt Cap
(USD M)
14,046
5,770
3,577
7,085
3,848
8,143
3,204
27,414
48,830
951
5,160
8,944
2,391
333
5,134
3,402
248
3,074
5,112
973
392
EPS Growth YoY (%)
FY16 FY17E FY18E
26.3
46.3
10.4
17.2
17.7
24.4
20.4
12.9
-3.5
-41.7
26.1
-7.3
18.7
-66.7
47.3
22.0
3.9
14.7
LP
-11.7
19.3
8.1
2.6
-4.4
2.6
-2.9
11.0
-5.6
1.1
8.6
84.7
8.3
-7.0
12.9
4.6
12.7
12.1
-6.5
-5.4
71.2
-14.3
-29.8
13.3
15.5
18.9
13.8
22.0
16.2
13.4
11.7
13.5
18.6
16.5
24.8
29.5
37.7
9.9
15.0
2.6
44.0
64.1
74.6
95.8
P/E (x)
EV/EBITDA (x)
ROE (%) Div. (%)
FY16 FY17E FY18E FY16 FY17E FY18E FY16
FY16
52.3
45.9
38.8
37.9
45.1
48.2
30.5
44.5
35.1
85.8
47.8
51.8
68.8
39.4
45.4
54.0
18.1
69.0
140.8
66.2
54.8
48.4
44.7
40.6
36.9
46.4
43.5
32.3
44.0
32.3
46.4
44.1
55.7
60.9
37.7
40.3
48.1
19.4
73.0
82.2
77.2
78.0
42.7
38.7
34.2
32.4
38.0
37.4
28.5
39.4
28.5
39.2
37.9
44.6
47.0
27.4
36.7
41.8
18.9
50.7
50.1
44.2
39.8
33.2
32.8
25.0
30.3
38.5
35.7
19.8
31.1
22.4
30.7
32.8
36.4
42.6
15.1
27.6
35.8
12.0
30.5
43.6
24.2
13.2
30.6
32.9
24.6
30.2
34.0
32.1
22.2
30.4
21.3
25.9
30.7
33.0
38.9
16.0
26.9
31.1
11.5
30.2
39.1
25.0
18.3
27.5
28.1
20.5
26.5
29.6
28.3
19.3
27.6
18.5
22.8
26.5
26.2
29.9
12.8
23.8
26.6
11.8
24.7
29.1
17.0
13.5
34.7
55.9
68.9
33.3
43.4
23.4
30.8
82.4
29.3
9.1
36.9
40.9
46.0
19.5
29.9
30.8
10.3
15.1
19.8
13.4
6.3
0.9
0.6
1.2
0.7
0.7
0.6
1.1
1.9
2.5
1.1
1.3
0.8
0.6
0.0
0.6
0.5
0.6
0.1
0.0
0.3
0.0
Note: For Nestle FY16 means CY15
Source: Company, MOSL
14 February 2017
5

Britannia Industries
Financials and valuations
Income Statement
Y/E March
Net Revenues
Change (%)
Raw Material Cost
Gross Profit
Margin (%)
Advertising
% of Sales
Other Expenditure
EBITDA
Change (%)
Margin (%)
Depreciation
Int. and Fin. Charges
Financial Other Income
Operating Other Income
PBT
Tax
Deferred Tax
Tax Rate (%)
PAT
Change (%)
Margin (%)
Non-rec. (Exp.)/Income
Reported PAT
Balance Sheet
Y/E March
Share Capital
Reserves
Networth
Loans
Capital Employed
Gross Block
Less: Accum. Depn.
Net Fixed Assets
Goodwill on consolidation
Capital WIP
Investments
Current
Non-current
Deferred Liability
Currents Assets
Inventory
Account Receivables
Cash and Bank Balance
Others
Curr. Liab. & Prov.
Account Payables
Other Liabilities
Provisions
Net Current Assets
Net Assets
E: MOSL Estimates
2012
54,608
19.0
35,328
19,280
35.3
4,196
7.7
12,221
2,863
31.9
5.2
618
416
584
253
2,666
650
19
25.1
1,997
48.8
3.7
0
1,996
2012
239
3,853
4,092
6,042
10,155
11,211
-5,912
5,300
944
1,113
2,485
1,064
1,421
76
8,579
4,318
1,130
613
2,518
8,189
3,870
2,748
1,570
390
10,156
2013
61,359
12.4
38,614
22,746
37.1
5,343
8.7
13,691
3,711
29.7
6.0
732
413
514
504
3,584
934
52
27.5
2,599
30.1
4.2
0
2,595
2013
239
5,269
5,508
3,800
9,401
12,893
-6,517
6,376
992
1,473
1,082
729
353
128
8,912
3,747
1,228
1,029
2,908
9,306
3,935
3,722
1,649
-394
9,401
2014
68,293
11.3
41,710
26,583
38.9
6,037
8.8
15,108
5,438
46.5
8.0
832
83
336
834
5,693
1,775
-39
30.5
3,957
52.3
5.8
0
3,953
2014
240
7,698
7,938
1,498
9,503
14,930
-7,524
7,406
1,070
1,071
1,979
1,629
350
89
9,543
4,203
1,087
1,091
3,163
11,477
5,567
3,799
2,111
-1,934
9,503
2015
77,751
13.8
46,918
30,833
39.7
6,517
8.4
16,510
7,806
43.5
10.0
1,445
39
880
833
8,035
2,553
-260
28.5
5,743
45.1
7.4
1,142
6,886
2015
240
12,176
12,415
1,451
13,926
16,065
-8,731
7,334
1,107
484
5,179
4,859
321
-234
13,596
4,040
1,358
2,263
5,934
14,007
7,034
4,273
2,700
-411
13,926
2016
83,254
7.1
49,989
33,265
40.0
7,378
8.9
14,340
11,547
47.9
13.9
1,134
49
1,244
718
12,326
3,963
-44
31.8
8,407
46.4
10.1
-103
8,305
2016
240
17,425
17,665
1,345
19,063
18,142
-9,799
8,343
1,159
901
7,529
6,315
1,214
-277
16,362
4,407
1,706
877
9,373
15,509
7,420
4,815
3,274
854
19,063
2017E
89,979
8.1
56,427
33,553
37.3
7,442
8.3
14,680
11,431
-1.0
12.7
1,189
56
1,702
820
12,708
4,079
0
32.1
8,629
2.6
9.6
0
8,629
2017E
240
22,305
22,545
1,305
23,850
20,842
-10,988
9,854
1,159
901
10,529
9,315
1,214
-277
18,231
4,898
2,152
1,171
10,010
17,101
7,621
5,156
4,325
1,130
23,850
(INR Million)
2018E
2019E
102,645
119,564
14.1
16.5
64,158
73,860
38,488
45,704
37.5
38.2
8,702
10,012
8.5
8.4
16,594
19,213
13,192
16,479
15.4
24.9
12.9
13.8
1,571
1,805
56
56
2,008
2,348
865
914
14,438
17,880
4,476
5,722
0
0
31.0
32.0
9,962
12,159
15.5
22.0
9.7
10.2
0
0
9,962
12,159
(INR Million)
2018E
2019E
240
240
28,216
35,429
28,456
35,669
1,228
1,158
29,683
36,827
24,042
-12,559
11,483
1,159
901
13,529
12,315
1,214
-277
21,656
5,200
2,101
3,345
11,010
19,322
8,852
5,523
4,947
2,334
29,683
27,542
-14,364
13,178
1,159
901
16,529
15,315
1,214
-277
26,536
6,057
2,421
5,868
12,190
21,752
9,743
5,920
6,089
4,784
36,827
14 February 2017
6

Britannia Industries
Financials and valuations
Ratios
Y/E March
Basic (INR)
EPS
BV/Share
DPS
Payout (%)
Valuation (x)
P/E
EV/Sales
EV/EBITDA
P/BV
Dividend Yield
Return Ratios (%)
RoE
RoCE
RoIC
Working Capital Ratios
Debtor (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
Cash Flow Statement
Y/E March
OP Profit
Dep
Financial Other Income
Interest Paid
Direct Taxes Paid
Inc in WC
CF from Operations
Extraordinary Items
(Inc)/Dec in FA
(Pur.)/Sale of Investments
Other Non Rec Exp
CF from Investments
Issue of Shares
Inc in Debt
Dividend Paid
Other Item
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
E: MOSL Estimates
2012
16.7
34.3
8.5
50.8
192.3
7.1
135.2
93.9
0.3
54.3
19.1
31.6
8
5.4
1.5
2013
21.7
46.1
8.5
39.1
147.9
6.3
104.0
69.8
0.3
54.1
25.8
36.7
7
6.5
0.7
2014
33.0
66.2
12.0
36.4
97.5
5.6
70.6
48.6
0.4
58.9
40.0
57.3
6
7.2
0.2
1.45111
2015
47.9
103.5
16.0
33.4
67.2
4.9
48.7
31.1
0.5
56.4
43.9
80.0
6
5.6
0.1
2016
70.1
147.2
20.0
28.5
45.9
4.6
32.8
21.8
0.6
55.9
46.0
90.1
7
4.4
0.1
2017E
71.9
187.9
25.2
35.0
44.7
4.2
32.9
17.1
0.8
42.9
35.0
66.2
9
3.8
0.1
2018E
83.0
237.1
29.1
35.0
38.7
3.6
28.1
13.6
0.9
39.1
32.2
69.2
7
3.5
0.0
2019E
101.3
297.2
35.5
35.0
31.7
3.1
22.1
10.8
1.1
37.9
31.9
78.4
7
3.2
0.0
2012
2,666
618
-584
-416
650
81
2,385
2013
3,584
732
-514
-413
934
-1,200
4,481
2014
5,693
832
-336
-83
1,775
-1,602
6,099
2015
8,035
1,445
-880
-39
2,553
350
5,736
2016
12,326
1,134
-1,244
-49
3,963
2,652
5,650
2017E
12,708
1,189
-1,702
-56
4,079
-19
8,190
(INR Million)
2018E
2019E
14,438
17,880
1,571
1,805
-2,008
-2,348
-56
-56
4,476
5,722
-970
-73
10,551
11,745
-2,505
1,400
0
-1,105
0
-146
902
387
-1,436
-155
769
613
-2,042
1,403
0
-639
0
-2,242
1,180
4
-3,426
416
613
1,029
-1,634
-897
0
-2,531
1
-2,302
1,189
15
-3,506
62
1,029
1,091
-548
-3,201
-1,142
-4,891
0
-47
1,684
-2,058
327
1,172
1,091
2,263
-2,494
-2,349
103
-4,740
0
-106
2,309
-119
-2,297
-1,386
2,263
877
-2,700
-3,000
0
-5,700
0
-39
2,888
-732
-2,195
295
877
1,171
-3,200
-3,000
0
-6,200
0
-78
3,509
-1,410
-2,177
2,174
1,171
3,345
-3,500
-3,000
0
-6,500
0
-70
4,052
-1,400
-2,721
2,523
3,345
5,868
14 February 2017
7

Britannia Industries
Corporate profile
Company description
Exhibit 1: Sensex rebased
Britannia is the market leader in the biscuits category
(value market share of ~33%). Biscuits contribute over
85% of Company’s consolidated revenue. Over the
years, the company has forayed into other bakery
items and dairy products (constituting ~15% of
consolidated revenues). The company enjoys strong
brand equity and has been consistently ranked
amongst the top food brand in India. Britannia is
promoted by Wadia group that has diversified
interests ranging from real estate, textiles, chemicals
and airlines business.
Exhibit 2: Shareholding pattern (%)
Dec-16
Promoter
DII
FII
Others
50.7
11.0
17.4
20.9
Sep-16
50.7
9.5
18.7
21.1
Dec-15
50.7
27.8
0.0
21.4
Source: Capitaline
Source: MOSL/Bloomberg
Exhibit 3: Top holders
Holder Name
Arisaig Partners (Asia) Pte Ltd. A/C Arisaig
Indiafund Limited
Life Insurance Corporation Of India
Icici Prudential Value Fund - Series 4
General Insurance Corporation Of India
% Holding
2.9
2.6
1.7
1.0
Source: Capitaline
Note: FII Includes depository receipts
Exhibit 4: Top management
Name
Nusli N Wadia
Varun Berry
Rajesh Arora
Designation
Chairman
Managing Director
Company Secretary
Exhibit 5: Directors
Name
A K Hirjee
Avijit Deb
Keki Dadiseth
Ness N Wadia
Ranjana Kumar
Vijay L Kelkar
Name
Ajai Puri
Jeh N Wadia
Nasser Munjee
Nimesh N Kampani
S S Kelkar
Source: Capitaline
*Independent
Exhibit 6: Auditors
Name
BSR & Co LLP
N I Mehta & Co
Type
Statutory
Cost Auditor
Exhibit 7: MOSL forecast v/s consensus
EPS
(INR)
FY17
FY18
FY19
MOSL
forecast
71.9
83.0
101.3
Consensus
forecast
73.8
88.3
104.3
Variation (%)
-2.6
-6.0
-2.8
Source: Bloomberg
Source: Capitaline
14 February 2017
8

Britannia Industries
NOTES
14 February 2017
9

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Britannia Industries
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Disclosure of Interest Statement
Britannia Industries
Analyst ownership of the stock
No
Served as an officer, director or employee -
No
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