19 January 2015
2QFY15 Results Update | Sector:
Consumer
Symphony
BSE SENSEX
28,262
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 (%)
S&P CNX
8,551
SYML IN
35.0
78.1/1.3
2,255/401
10/92/425
38/36
25.0
CMP: INR2,231
TP: INR2,100 (-6%)
Neutral
Revenue and PAT post marginal miss, EBITDA margin expansion robust
Symphony (SYML) posted a revenue of INR1.51b (est. INR1.55b) in 2QFY15, compared
to INR1.15b in 2QFY14, marking a YoY growth of 31.4%. During the quarter, company
witnessed 27.4% volume growth with total volumes aggregating to 2.4 lakh coolers,
while realizations grew 1.5% YoY from INR6,183/unit to INR6,277/unit. Domestic
revenue grew by 33.5% YoY to INR1.40b, while exports grew 10% YoY to INR113m.
EBITDA grew by 54.8% this quarter to INR481m, EBITDA margin stood at 31.7% in
2QFY15, compared to 26.9% in 2QFY14 (an expansion of 480bp YoY), largely on
account of better sales mix, softening of commodity prices and higher economies of
scale. Hence, PAT for 2QFY15 stood at INR360m (est. INR380m), compared to
INR247m in 2QFY14, marking a YoY growth of 46%.
Replicating asset light business model in Impco business:
Management is exploring
the possibility of outsourced manufacturing for Impco, with an aim to make the
business asset light, similar to its India operations. Further, management plans to
monetize Impco assets like plant and machinery and real estate, resulting in proceeds
of ~INR0.4b. We believe re-modeling of Impco into an asset light model will ensure
focus on R&D, marketing and product development activities thus resulting in superior
performance of the business. Also, Impco too could turn into a high RoCE and scalable
business, similar to domestic operations.
Valuation and view:
We raise FY15E, FY16E and FY17E earnings estimates by 5%, 11%
and 22% to reflect higher margins led by new product innovations. Given its leadership
with 50% market share, asset light business model (~72% RoCE), huge growth
opportunity in air coolers due to 8% penetration and expected shift from unorganized
(80% of market) to organized, we believe SYML deserves premium multiple of 25x
FY17E EPS, against its five-year average multiple of 15x one-year forward. We value
the stock at 25x FY17E EPS and arrive at a target price of INR2,100. Maintain
Neutral.
Financials & Valuation (INR Billion)
Y/E JUN
Sales
EBITDA
NP
EPS (INR)
EPS Gr. (%)
BV/Sh (INR)
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA
Div. Yld (%)
EV/Sales (x)
2015E 2016E 2017E
7.1
1.9
1.5
43.5
43.1
100.1
48.6
65.7
51.1
51.3
22.3
40.0
0.9
11.0
9.2
2.8
2.2
61.9
42.4
129.3
54.0
73.0
52.9
36.0
17.3
27.6
1.3
8.3
12.0
3.8
2.9
84.3
36.2
169.1
56.5
76.4
52.7
26.5
13.2
19.8
1.7
6.3
Estimate change
TP change
Rating change
22%
50%
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.

Symphony
Revenue growth marginally below expectations
Symphony Limited revenue of INR1,514m (est. INR1555m) in 2QFY15 as
compared to INR1,152m in 2QFY14, marking a YoY growth of 31.4%.
Volume growth stood at 27.4% with total volumes aggregating 2.4 lakh coolers,
realizations grew 1.5% YoY from INR 6,183/unit to INR6,277/unit.
Domestic revenues grew 33.5% YoY to INR1,401m, while exports grew 10% YoY
to INR113m. Exports were impacted by political turmoil in Egypt, Syria and Iraq.
During the quarter, SYML launched two new models in the window air cooler
segment, as well as launched packaged air coolers in the industrial segment
which deliver cooling in the range of 4k to 10k cfm (cubic feet per minute).
Package air coolers are ready to use, easy and faster to install air coolers as
against regular coolers. Initial response has been positive. SYML has also
received trial orders from banks branches which can be scaled up going forward.
Exhibit 2: Domestic and export mix
YoY Growth
Exports
Domestic
14% 16% 17% 17% 15% 3% 15% 15% 7% 9% 19% 13% 7% 7%
Exhibit 1: Revenue growth trend
Total revenue (INR m)
197%
1,506
1,514
877
1,027
1,152
1,133
852 1,112
780 871
56%
562
48%
36% 42% 31%
28%
721
24%
9%
5%
-16%
-22%
31% 33%
288
243
86% 84% 83% 83% 85% 97% 85% 85% 93% 91% 81% 87% 93% 93%
Source: Company, MOSL
Source: Company, MOSL
Exhibit 3: Domestic revenue trend
Domestic (INR m)
950
724
669
1,049
917
1,310
1,401
956
Exhibit 4: Export revenue trend
Export (INR m)
135 146
89
40
37 27
51
162
128
103
113
71
216
196
473
248
645 725
207
850
Source: Company, MOSL
Source: Company, MOSL
Exhibit 5: Volumes trend
Volume (units)
213,016
187,389
169,350
187,718
155,679
140,599
118,921
51,145
238,668
Exhibit 6: Realizations trend
Realization (INR)
5,522
6,062
6,566
6,035 6,183 5,986
6,927
6,183 6,277
163,987
4,750
Source: Company, MOSL
19 January 2015
Source: Company, MOSL
2

Symphony
EBITDA margin expansion robust; PAT growth marginally below estimates
During the quarter, company posted gross margins of 56% as against 55%
helped by softening of commodity prices and higher contribution of new
products (which have higher margins). This is despite excise duty hike of 2%.
EBITDA grew by 54.8% this quarter to INR481m, EBITDA margins stood at 31.7%
in 2QFY15 as compared to 26.9% in 2QFY14 an expansion of 480bps YoY largely
on account of higher economies of scale (with other expenses declining 330bp).
Consequently, PAT for 2QFY15 stood at INR360m (est.INR380m) as compared to
INR247m in 2QFY14 marking a YoY growth of 46%.
Exhibit 8: EBITDA and EBITDA margins trend
61%
56%
54%
EBITDA (INR m)
EBITDA margin (%)
29% 27% 27% 30%
28%
24.5% 25%
23%
29%
19%
10.9%
32%
23%
Exhibit 7: Gross margin trend
Gross margin
52%
52%
54%
58%
49%
56% 60%
51%
53%
55%
56%
1%
31 138 199 246 2 202 247 301 139 310 335 439 238 481
Source: Company, MOSL
Source: Company, MOSL
Exhibit 9: PAT trend
PAT (INR m)
PAT growth (YoY)
558%
259
112
44
-57%
-46%
197
150
346%
27%
161
-54% 44%
21
180
20% 32%
135
247
270
216
26%
60%
46%
327
360
53% 50%
Source: Company, MOSL
Gross margins sustainable; EBITDA margins to expand going forward
Management guided that gross margins are sustainable at current levels of 56%.
Going forward, EBITDA margins could expand further as with a completely
outsourced business model, most of the costs are largely fixed, thus higher scale
of revenues to result in higher EBITDA margins.
For example, employee cost as reported is purely white-collar employee cost;
since production is outsourced, labor cost forms part of cost of goods sold.
19 January 2015
3

Symphony
Replicating asset light business model in Impco business
Management is exploring the possibility of outsourced manufacturing for Impco,
with an aim to make the business asset light, similar to its India operations.
Company is in the process of identifying OEMs in Mexico and re-modeling of
business will happen in phases; post which company will solely focus on R&D,
marketing and product development activities.
Further; management plans to monetize Impco’s assets like plant and machinery
and real estate, resulting in proceeds of ~INR0.4b.
The funds will be utilized to retire debt on Impco books and enable it to fund its
own working capital.
We believe re-modeling of Impco into an asset light model will ensure focus on
R&D, marketing and product development activities thus resulting in superior
performance of the business.
Additionally, Impco too could turn into a high RoCE and scalable business,
similar to domestic operations.
Payout at 50%; to consider inorganic opportunities for market access
Management highlighted that as per its dividend policy, it will payout at least
50% of annual profits.
Further, management is looking for inorganic opportunities in overseas markets
to gain market access. Some portion of cash on books will be utilized for
inorganic opportunities, while rest will stay in company as a safety buffer.
Total cash on books stood at INR2.05b as on 2QFY15.
Other conference call highlights
Total air cooler market is estimated to be ~6m units of which organized sector is
20%. SYML has 50% market share in organized market in value terms.
SYML has been able to maintain its market share due to singular focus on air
coolers, innovation in products and expansion in distribution network.
Current installed capacity at Surat is 200,000 units and operating at 65%
utilization level. Surat SEZ enjoys 100% tax exemption for first five years,
followed by 50% tax exemption for the following five years.
As Surat SEZ enters its 5
th
year of operations in FY16, 100% tax exemption from
this unit will continue for one more year.
Post expiration of 100% tax benefits in Surat SEZ, SYML plans to move the
export business to Kutch SEZ where it has a capacity of 100,000 units, which can
be scaled up to 200,000 units without any material capex.
Ad spend during 1HFY15 is negligible as 80-90% of the A&P spend is conducted
during the summer season which falls in 2H.
Organized retail contributes 11% to revenues.
SYML is launching specific products for the e-commerce market in order to cater
to this channel in a better manner, and at the same time ensuring minimal
impact of aggressive practices followed by e-commerce companies on
traditional retailing channel.
Export market at 7m units is a large opportunity, and management believes it
offers substantial growth opportunity from a longer term perspective.
19 January 2015
4

Symphony
Valuation and View
We value SYML at 25x FY17E EPS, higher than its historic 5 year average multiple of
15.3x, which we believe is justified considering:
Huge untapped opportunity:
High and rising temperature levels are leading to
greater demand for cooling solutions. While 54% (143m households) of Indian
households live in hot and dry climatic conditions and 4% live in moderate
climatic conditions, only about 8% own Air Coolers thereby providing huge
opportunity for growth. Considering lower cost of ownership vs Air Conditioners
(70% lower capital costs / 90% lower running costs), Air Coolers are the mass
market option for Indian consumers.
Market to shift from unorganized to organized:
Consumer up-trading is shifting
demand towards organized players in a number of consumer categories led by
key reasons like: (1) rising income and aspiration levels, (2) greater
quality/brand awareness, and (3) reducing taxation differences. Large part of
the cooler industry is unorganized at 80% (4m units) which makes the market
potential for organized players (1m units) even larger.
SYML enjoys market leadership with 50% market share:
SYML is the pioneer in
the industry and commands a 50% market share followed by Kenstar (35%),
Bajaj Electricals (15%), and Usha. It commands 10-12% pricing premium over
competitors, due to consistent product innovation and strong brand equity.
Strong return ratios:
SYML reports strong return on capital with core standalone
RoCE standing at 237% for 2QFY15. High margins (~30%) coupled with 100%
outsourcing and 100% advance from distributors on domestic sales helps SYML
to earn high returns on its capital employed. SYML has chosen to focus on its
key strengths - innovation, marketing and brand building. We expect SYML to
continue reporting strong RoCE on the back of its strong business model.
We believe the following factors can pose risks to our estimates:
Seasonality in demand poses inventory risk:
The demand for SYML’s products is
seasonal – 1Q is the worst quarter and 4Q is the best. 4Q is the best quarter due
to summer in India and 1Q is the worst due to monsoon. If in a particular year,
the summer is mild, SYML’s sales may be impacted, exposing it to inventory risk.
Product concentration risk:
Air Coolers constitute 100% of SYML’s sales. Any
new invention in the cooling equipment industry poses a risk to the business.
Exhibit 10: Price to earnings (One year forward)
48
40
32
24
16
8
0
15.3
P/E (x)
5 Yrs Avg(x)
42.7
Exhibit 11: Price to book (One year forward)
20.0
15.0
10.0
5.0
0.0
5.5
P/B (x)
5 Yrs Avg(x)
18.7
Source: MOSL
Source: MOSL
19 January 2015
5

Symphony
Quarterly metrics
Exhibit 12:
1QFY13
Revenue contribution
Domestic
Exports
Volume trend
Volume (units)
YoY growth
Realisation trend
Realization (INR)
YoY growth
4,750
NA
5,522
NA
6,062
NA
6,566
NA
6,035
27%
6,183
12%
5,986
-1%
6,927
6%
6,183
2%
6,277
2%
51,145
NA
155,679
NA
140,599
NA
169,350
NA
118,921
133%
187,389
20%
187,718
34%
213,016
26%
163,987
38%
238,668
27%
85%
15%
97%
3%
85%
15%
85%
15%
93%
7%
91%
9%
81%
19%
87%
13%
93%
7%
93%
7%
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
Source: Company, MOSL
19 January 2015
6

Symphony
Story in charts
Exhibit 13: Market Penetration
66%
Bajaj, 15%
Exhibit 14: Market Share
Others, 5%
8%
4%
Kenstar,
30%
Air Conditioners
Air Coolers
Fans
Symphony,
50%
Source: Company, MOSL
Source: Company, MOSL
Exhibit 15: Market Distribution (%)
Organized,
20%
Exhibit 16: Advertising spend as a % of sales
4.4%
3.2%
4.3%
3.7%
4.8%
4.2%
Unorganized,
80%
Source: Company, MOSL
FY09
FY10
FY11
FY12
FY13
FY14
Source: Company, MOSL
Exhibit 17: Dealer network
Exhibit 18: RoCE (%)
65.7
54.6
42.4
43.7
73.0
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY12
FY13
FY14
FY15E
FY16E
Source: Company, MOSL
Source: Company, MOSL
19 January 2015
7

Symphony
Key Assumptions
Exhibit 19: Key assumptions
FY08
Quantity sold
Domestic coolers
Exports coolers
Geysers / Others
Total units sold
Volume growth
Domestic coolers
Exports coolers
Blended volume growth
Realisation (INR per unit)
Domestic coolers
Exports coolers
Blended realisation
Realisation growth %
Domestic coolers
Exports coolers
Blended realisation growth
0%
0%
5%
-10%
1%
-6%
-11%
-6%
5%
123%
25%
8%
10%
10%
9%
1%
6%
10%
10%
9%
10%
10%
9%
8%
10%
9%
8%
10%
9%
5,030
3,800
4,733
5,300
3,437
4,797
4,984
3,069
4,504
5,246
6,844
5,641
5,659
7,535
6,187
6,156
7,599
6,566
6,771
8,359
7,188
7,448
9,195
7,867
8,044
10,115
8,540
8,688
11,126
9,272
44%
208%
69%
72%
36%
62%
17%
39%
22%
0%
-2%
-2%
22%
0%
14%
25%
25%
29%
25%
25%
21%
20%
20%
20%
20%
20%
20%
124,455
24,168
6,208
154,831
178,678
74,398
8,310
261,386
306,979
101,061
14,291
422,331
358,911
140,811
15,095
514,817
357,819
138,030
10,675
506,524
437,060
137,690
409
575,159
546,325
172,113
0
718,438
682,906
215,141
0
898,047
819,488
258,169
0
1,077,656
983,385
309,803
0
1,293,188
FY09
FY10
FY11
FY12
FY13
FY14
FY15E
FY16E
FY17E
Source: Company, MOSL
19 January 2015
8

Symphony
Corporate profile
Company description
SYML is the largest Air Cooler company in India, with
50% share (40% volume market share) in the domestic
organized market, followed by Kenstar (35%), Bajaj
Electricals (15%), and Usha, among others. It commands
10-12%
pricing
premium
over
competitors,
demonstrating its strong brand equity. SYML has a wide
range of Air Coolers like Diet (three models), Desert
(three models), Room (four models) and Personal (three
models). Its pan India network consists of 800+
distributors who in turn have 16,400+ retail dealers. Its
international network is spread across 60 countries
including USA, Mexico, Middle East, Europe, Africa, and
South East Asia.
Exhibit 20: Sensex rebased
Exhibit 21: Shareholding pattern (%)
Sep-14
Promoter
DII
FII
Others
75.0
2.7
3.8
18.5
Jun-14
75.0
2.2
3.5
19.3
Sep-13
75.0
2.5
3.4
19.1
Exhibit 22: Top holders
Holder Name
Rowenta Networks Pvt Ltd
Matthews India Fund
Axis Mutual Fund Trustee Ltd A/c Axis Mutual Fund A/c
%
Holding
3.8
3.2
1.1
Note: FII Includes depository receipts
Exhibit 23: Top management
Name
Achal Bakeri
Designation
Chairman & MD
Exhibit 24: Directors
Name
Achal Bakeri
Dipak Palkar
Himanshu Shah
Nrupesh Shah
Satyen Kothari
*Independent
Name
Jonaki Bakeri
Chandrakant Gandhi
Exhibit 25: Auditors
Name
Shah & Dalal
Dalwadi & Associates
Type
Statutory
Cost Auditor
Exhibit 26: MOSL forecast v/s consensus
EPS (INR)
FY15
FY16
FY17
MOSL forecast
43.5
61.9
84.3
Consensus
forecast
38.5
50.1
64.0
Variation (%)
13.0
23.5
31.8
19 January 2015
9

Symphony
Financials and valuations
Consolidated - Income Statement
Y/E June
Net Sales
Change (%)
Total Expenditure
EBITDA
Margin (%)
Depreciation
EBIT
Int. and Finance Charges
Other Income - Rec.
PBT bef. EO Exp.
EO Expense/(Income)
PBT after EO Exp.
Current Tax
Deferred Tax
Tax Rate (%)
Reported PAT
PAT Adj for EO items
Change (%)
Margin (%)
Net Profit
No of fully diluted shares (Mn - FV: Rs10)
Adj EPS
FY10
1,902
53.2
1,368
535
28.1
13
522
6
38
554
0
554
187
-3
33.2
370
370
-14.6
19.5
370
35.0
10.6
FY11
2,906
52.7
2,214
692
23.8
53
639
4
122
756
0
756
213
31
32.3
512
512
38.4
17.6
512
35.0
14.6
FY12
3,135
7.9
2,409
726
23.2
49
677
8
63
733
0
733
196
6
27.5
531
531
3.8
16.9
531
35.0
15.2
FY13
3,780
20.6
2,992
788
20.9
39
749
3
167
913
0
912
296
15
34.1
602
602
13.3
15.9
602
35.0
17.2
FY14
5,327
40.9
4,066
1,261
23.7
38
1,223
1
138
1,360
7
1,353
295
1
21.9
1,057
1,063
76.6
20.0
1,063
35.0
30.4
FY15E
7,065
32.6
5,129
1,936
27.4
45
1,890
0
166
2,056
0
2,056
534
0
26.0
1,521
1,521
43.1
21.5
1,521
35.0
43.5
FY16E
9,203
30.3
6,428
2,776
30.2
48
2,728
0
199
2,927
0
2,927
761
0
26.0
2,166
2,166
42.4
23.5
2,166
35.0
61.9
FY17E
11,990
30.3
8,194
3,796
31.7
49
3,747
0
238
3,985
0
3,985
1,036
0
26.0
2,949
2,949
36.2
24.6
2,949
35.0
84.3
Consolidated - Balance Sheet
Y/E June
Equity Share Capital
Reserves
Net Worth
Minority Interest
Deferred Liabilities
Total Loans
Capital Employed
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Capital WIP
Total Investments
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
FY10
70
794
864
0
7
1
872
196
66
130
0
535
432
65
121
28
218
224
149
75
208
872
FY11
70
1,455
1,525
0
45
2
1,572
1,553
849
704
0
117
1,311
698
386
47
180
560
478
82
750
1,572
FY12
70
1,821
1,891
0
55
74
2,021
1,650
949
701
1
620
1,455
429
422
226
377
757
523
234
698
2,021
FY13
70
2,152
2,222
0
75
0
2,298
1,736
1,041
696
36
988
1,443
430
377
447
189
866
537
329
578
2,297
FY14
70
2,688
2,758
0
5
0
2,763
1,753
1,057
696
82
1,986
1,168
385
416
57
311
1,170
639
530
-1
2,763
FY15E
70
3,432
3,501
0
5
0
3,507
1,886
1,103
783
0
1,986
2,066
486
551
656
374
1,328
806
522
738
3,507
FY16E
70
4,451
4,521
0
5
0
4,527
1,936
1,151
785
0
1,986
3,320
598
718
1,555
448
1,565
993
571
1,756
4,527
FY17E
70
5,846
5,915
0
5
0
5,921
1,986
1,200
786
0
1,986
5,035
759
936
2,802
538
1,887
1,261
626
3,149
5,921
19 January 2015
10

Symphony
Financials and valuations
Ratios
Y/E June
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)
Leverage Ratio (x)
Current Ratio
FY10
10.6
10.9
24.7
0.5
5.5
211.0
203.8
90.3
41.0
146.0
0.0
53.7
80.9
FY11
14.6
16.2
43.6
2.0
15.9
152.5
138.1
51.2
26.9
112.8
0.1
42.8
63.6
FY12
15.2
16.6
54.0
5.5
42.1
147.0
134.7
41.3
24.9
107.4
0.2
31.1
42.4
FY13
17.2
18.3
63.5
6.5
44.2
129.8
121.8
35.1
20.5
98.5
0.3
29.3
43.7
FY14
30.4
31.5
78.8
13.0
50.3
73.4
70.9
28.3
14.6
61.9
0.6
42.7
54.6
FY15E
43.5
44.8
100.1
19.0
51.1
51.3
49.8
22.3
11.0
40.0
0.9
48.6
65.7
FY16E
61.9
63.3
129.3
28.0
52.9
36.0
35.3
17.3
8.3
27.6
1.3
54.0
73.0
FY17E
84.3
85.7
169.1
38.0
52.7
26.5
26.0
13.2
6.3
19.8
1.7
56.5
76.4
2.2
12.4
23
1.8
87.6
48
1.6
50.0
49
1.6
41.5
36
1.9
26.4
28
2.0
25.1
28
2.0
23.7
28
2.0
23.1
28
1.9
2.3
1.9
1.7
1.0
1.6
2.1
2.7
Consolidated - Cash Flow Statement
Y/E June
NP / (Loss) Before Tax and EO Items
Depreciation
Interest & Finance Charges
Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
Others
CF from Operating incl EO
(inc)/dec in FA
(Pur)/Sale of Investments
Others
CF from Investments
(Inc)/Dec in Debt
Interest Paid
Dividend Paid
Others
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
FY10
554
13
-13
282
44
316
-8
308
-77
-191
-9
-277
-2
-8
-6
0
-16
14
14
28
FY11
756
53
-3
257
-540
9
-15
-6
-223
388
17
182
1
-4
-18
-136
-157
19
28
47
FY12
733
49
-20
187
284
858
-15
843
-38
-503
-357
-898
73
-8
-68
237
234
179
47
226
FY13
913
39
-61
241
60
709
-42
668
-67
-368
284
-151
-74
-3
-219
1
-296
221
226
447
FY14
1,353
38
-59
374
1
959
-55
904
-94
-998
128
-965
0
-1
-342
12
-330
-391
447
57
FY15E
2,056
45
-166
534
-140
1,262
0
1,262
-50
0
166
116
0
-1
-778
0
-779
599
57
656
FY16E
2,927
48
-199
761
-118
1,897
0
1,897
-50
0
199
149
0
0
-1,146
0
-1,146
900
656
1,555
FY17E
3,985
49
-238
1,036
-146
2,614
0
2,614
-50
0
238
188
0
0
-1,555
0
-1,555
1,247
1,555
2,802
19 January 2015
11

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