The Inner Light of Asian Compounders: The Reborn of India’s Hero Motocorp (Bamboo Innovator Insight)

The following article is extracted from the Bamboo Innovator Insight weekly column blog related to the context and thought leadership behind the stock idea generation process of Asian wide-moat businesses that are featured in the monthly entitled The Moat Report Asia. Fellow value investors get to go behind the scene to learn thought-provoking timely insights on key macro and industry trends in Asia, as well as benefit from the occasional discussion of potential red flags, misgovernance or fraud-detection trails ahead of time to enhance the critical-thinking skill about the myriad pitfalls of investing in Asia at the microstructure- and firm-level.

The weekly Bamboo Innovator Insight series brings to you:

  • The Inner Light of Asian Compounders: The Reborn of India’s Hero Motocorp, Nov 4, 2013 (Moat Report Asia, BeyondProxy)

Hero

Dear Friends and All,

The Inner Light of Asian Compounders: The Reborn of India’s Hero Motocorp

A Hero lights up this Diwali festival: Hero Motocorp (HMCL IN, MV $6.8 billion), the world’s largest two-wheeler manufacturer (by volume), announced on Nov 1, the first day of Diwali, that they achieved the highest-ever retail sales (625,420 units, +18.2% yoy) for any month in October in India. This is also the first time that any two-wheeler manufacturer has exceeded the landmark 6 lakh (600,000) unit sales in a month. Hero sold 6.23 million units in the year ended March 31, and has a capacity to produce 7 million annually. Hero’s performance stood in contrast to the four-wheeler market in which the automakers from Maruti Suzuki, Tata Motor and Mahindra & Mahindra reported lower or nearly flat sales with the Indian economy growing at its slowest pace in a decade and accelerating inflation (onion prices has surged from Rs 16 a kg in Jun to Rs 100) leading the central bank to raise its lending rate twice in as many months. Interestingly, just three years ago on Dec 21, 2010, Hero hit a crisis and was thought to have problems surviving in India. Yet, Hero has emerged stronger from the crisis because of its “Inner Light”, just like the spiritual significance of Diwali.

Diwali, also called Deepavali or the “festival of lights”, is a five-day Hindu festival to celebrate the slaying of the evil demon Narakasura by Lord Krishna, the incarnation of Vishnu (the supreme god of Hinduism), signifying the victory of good over evil and light over darkness. The deeper spiritual meaning of Diwali celebrates the belief that there is something beyond the physical body and mind which is pure, infinite, and eternal, called the Atman or the Inner Light. With this awakening of the Inner Light comes compassion and the awareness of the oneness of higher knowledge which brings ananda (joy or peace).

Hero Motocorp is an incarnation of Hero Honda, the JV formed between founder Brijmohan Lall Munjal and Japan’s Honda Motor (7267 JP) in 1984 in a country that did not think beyond scooters back then. By 2001, Hero Honda beat Bajaj Auto (BJAUT IN) to become India’s largest two-wheeler manufacturer – and also the world’s largest for 12 consecutive years. In the years between March 2000 and March 2011, Hero Honda’s revenue grew from Rs 2,118 crore to Rs 20,787 crore ($3.4 billion); profits increased from Rs 192 crore to Rs 1,927 crore ($314 million).

On Dec 21, 2010, Honda announced a bitter split up and Hero bought over their 26% stake for Rs 3,842 crore ($622 million), ending the 26 year-old JV which started with equity of Rs 16 crore, of which Honda contributed Rs 4 crore. Worse, Honda will be competing with Hero in India and Hero has to drop the Honda name from its brands, products, and distribution outlets after March 2014. How would customers know that the Hero bike is not Honda nad that the quality has not gone down? Dealers are thought to be stampeding out of Hero to join Honda. Prior to the termination of the joint venture, Honda supplies technology for products which Hero marketed in India and Hero’s right to use Honda’s new technology for Hero’s new products will end in 2017, though they can continue to use the existing technology. The 90 year-old Munjal commented, “They didn’t tell us that they want to leave. We told them that if they, themselves, are here to make motorcycles, then they become competitors. How can a competitor and principal be the same?” Since the split, Honda, the world’s biggest motorcycle maker, overtook Bajaj Auto to become India’s second biggest two-wheeler seller with around a 20% market share and vowed to overtake former partner Hero’s 43% leadership by 2020.

So how did Hero survive the crisis? What are the lessons for value investors in assessing stocks in Asia beyond the quantitative financial numbers? What are the five key Bamboo Innovator takeaways?

Red flags waving over Asian corporate debt

November 3, 2013 5:06 pm

Red flags waving over Asian corporate debt

By Jeremy Grant

Anyone looking for signs of coming strains on Asia Inc as the end of easy central bank money looms needs look no further than the voracious borrowing by Chinese companies in the US dollar bond markets. The Bank for International Settlements estimates that foreign currency loans in China grew 35 per cent in the 12 months to March this year – more than twice the rate for renminbi loan growth, and much of that in US dollars. For some, this is the classic “canary in the coal mine” warning of problems just around the corner. Bryant Edwards, a lawyer with law firm Latham & Watkins, says the situation is “scarily reminiscent” of Europe in 2001, when the high-yield market was similarly dominated by telecoms and IT companies that subsequently crashed. “It really worries me that there is so much concentration in this sector,” he says. Read more of this post

When Buffett Was Right, but We Were Too Scared

Oct 31, 2013

When Buffett Was Right, but We Were Too Scared

DAVID WEIDNER

Just over five years ago, global financial institutions appeared on the verge of collapse and stocks were sinking, Warren Buffett wrote an op-ed in The New York Timesthat seemed, at that time, out of touch with the pulse of the market. He encouraged investors to buy. Buy? Mr. Buffett, then 78, appeared to finally have succumbed to a senior moment. Of course, it was great advice. Unfortunately, not enough of us followed it. Read more of this post

Ten Things a Fund Prospectus Won’t Tell You; A lot of crucial information isn’t there. Here’s what’s missing—and how to get it

Ten Things a Fund Prospectus Won’t Tell You

A lot of crucial information isn’t there. Here’s what’s missing—and how to get it.

KAREN DAMATO

Nov. 3, 2013 4:00 p.m. ET

So, you’re trying to decide whether to buy a mutual fund or ETF, and you need to know the essential facts. Here’s an unfortunate truth: You won’t find many of the answers you need in the prospectus. Whether you have the svelte “summary” version or the less commonly distributed “statutory” prospectus, which can run to dozens of pages, a lot of the information necessary to make an informed decision just isn’t there. Here are 10 key questions that aren’t answered by the prospectus, and instructions on how to easily find this must-have information: Read more of this post

Ben Franklin Had A Humorous Suggestion For Getting People To Wake Up Earlier

Ben Franklin Had A Humorous Suggestion For Getting People To Wake Up Earlier

DAVEN HISKEYTODAY I FOUND OUT NOV. 3, 2013, 12:30 PM 3,247 4

Today I found out that Ben Franklin’s proposal for something similar to daylight saving time was written as a joke. In a comedic letter he wrote, “An Economical Project,” (published in 1784), “to the authors of the journal of Paris,” Franklin mentions something like daylight saving time. Although, instead of changing clocks, he suggested ringing church bells and firing cannons, among other things, as the sun rises to maximize the amount of time people would be awake during times when the sun is providing free light. The letter was meant to be a satire, rather than actually suggesting these changes be made. Here’s an excerpt of the letter: Read more of this post

The Business of Business is More Than Business

The Business of Business is More Than Business

Laura Tyson, a former chair of the US President’s Council of Economic Advisers, is a professor at the Haas School of Business at the University of California, Berkeley.

31 October 2013

BERKELEY – Earlier this year, Robert Simons of Harvard Business School fired off a blistering indictment of American businesses and business schools. American companies, he charged, have become softheaded, unfocused, and uncompetitive, in part because business schools are persuading them to embrace a long list of gauzy, feel-good values, such as social responsibility, environmental sustainability, and inclusiveness. Read more of this post

China mimics worst of ‘Abenomics’ at worst time

China mimics worst of ‘Abenomics’ at worst time

BY WILLIAM PESEK

NOV 2, 2013

If imitation really is the greatest form of flattery, Shinzo Abe should be thrilled the Chinese are copying his “Abenomics” strategy to excite investors. The rest of the world shouldn’t be. China isn’t cribbing the prime minister’s actual blueprint, but his formula of spin and hype that has convinced the world something that doesn’t yet exist is real. The key to a great ad campaign is attracting customers and keeping them, something Abe has done with a brilliance that could teach the Edelman public relations firm a thing or two. Read more of this post

Closest ear won’t always be the best organ for advice

Closest ear won’t always be the best organ for advice

Updated: 2013-11-04 00:12

By Cecily Liu in London ( China Daily)

Business consultant warns of expensive mistakes in acquiring other companies Read more of this post

The little VC that could: How Crosscut Ventures turned a measly $5.1M into a killer early stage portfolio

The little VC that could: How Crosscut Ventures turned a measly $5.1M into a killer early stage portfolio

BY MICHAEL CARNEY 
ON NOVEMBER 1, 2013

Size matters. But to dispel a commonly repeated myth, bigger isn’t always better – in terms of VC fund size, that is. Many mega-firms have learned as much in recent years, pulling back from billion dollar fund sizes in search of more manageable multi-hundred million dollar sums that can be put to use more effectively. But at the very opposite end of the spectrum are micro-VCs, which, whether by choice or lack of access to additional capital, have to make due with far, far less. These sub-$50 million dollar funds often find it difficult to support multiple investment partners on the meager fees they generate, and can be handicapped in their ability to write larger checks or double down once they do make a winning early stage bet.  Read more of this post

J Hilburn co-founder: ‘There should be healthy tension in a company’

J Hilburn co-founder: ‘There should be healthy tension in a company’

Veeral Rathod talks about startup culture, business school, and why entrepreneurs should be organised, not structured

Jana Kasperkevic

theguardian.com, Sunday 3 November 2013 04.00 GMT

J Hilburn doubled its profits between 2010 and 2012. Photograph: Erin Goldberger/J Hilburn

Many men hate to go out shopping: the dressing rooms, the endless racks, the time that could be spent doing something else. So, two former Wall Street guys thought, why not let the clothes come to them? Six years later, Hil Davis and Veeral Rathod are still growing their company, Dallas-based J Hilburn, which has become known as the Mary Kay of menswear. It offers its clients a variety of shirts, suits and accessories such as cufflinks, belts and luggage through stylists who will visit customers at home, the office or even the gym. The clothes are made from the same material as high-end brands – the textiles were a source of active debate between the founders – and then custom-fitted to the customer. Read more of this post

A biologist’s answers to the big question; Craig Venter’s ‘Life at the Speed of Light’ recounts his quest to create life itself

November 3, 2013 5:34 pm

A biologist’s answers to the big question

Review by Clive Cookson

Craig Venter’s ‘Life at the Speed of Light’ recounts his quest to create life itself, writes Clive Cookson

Life at the Speed of Light: From the Double Helix to the Dawn of Digital Life, by J. Craig Venter, Little, Brown, RRP£20, $26.95)

Dublin in February 1943 was the unlikely venue for the most influential scientific lecture series of the 20th century. In What is Life?, the great Austrian physicist Erwin Schrödinger, who had taken refuge from the Nazis in Ireland, showed how physics and chemistry could explain the whole of biology. He predicted, among other things, the discovery of a genetic code. Read more of this post

Boy, 10, leaps to death ‘on teacher’s orders’

Boy, 10, leaps to death ‘on teacher’s orders’
AGENCE FRANCE-PRESSE

Friday, November 01, 2013
A 10-year-old boy jumped 30 floors to his death after failing to write a self-criticism letter demanded by his teacher. The fifth-grade primary school student had been ordered to write a 1,000-character apology by his teacher for talking in class, China National Radio reported on its website, citing a neighbor. The teacher allegedly told him to jump out of a building after he failed to complete the task, the report quoted relatives and the neighbor as saying. “Teacher, I can’t do it,” was found written in one of his textbooks, CNR said. “I flinched several times when I tried to jump from the building.” Read more of this post

Wenzhou property prices may fall further amid lack of willing investors

Wenzhou property prices may fall further amid lack of willing investors

Staff Reporter

2013-11-03

Wenzhou, formerly looked upon as a benchmark for China’s property market and whose property prices once approached that of first-tier cities such as Shanghai, Beijing and Shenzhen, has seen its property prices falling for 25 consecutive months at a time when 69 out of the nation’s 70 major cities saw their property prices rising, becoming the only major city that has seen declining property prices, the Beijing-based China Securities Journal reports. Read more of this post

China reform checklist: How to tell that this time it’s for real?

China reform checklist: How to tell that this time it’s for real?

Sun, Nov 3 2013

By Tomasz Janowski

TOKYO (Reuters) – The message from Beijing could not be clearer: China needs to shift to a more balanced economy that is socially and environmentally sustainable. That was the conclusion of a key Communist Party meeting a decade ago, yet what followed was more of the same: rapid investment-led expansion, which turned China into the world’s no.2 economy, but left it laden with debt, environmental damage and excess capacity. Read more of this post

Hailo boss on driving UK’s most ambitious app; It’s not only about calling cabs – Jay Bregman believes his smartphone technology could also change the way you buy everything, including cars

Hailo boss on driving UK’s most ambitious app

It’s not only about calling cabs – Jay Bregman believes his smartphone technology could also change the way you buy everything, including cars

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Big yellow taxi app: Jay Bregman, co-founder of Hailo, the company that links cab drivers with customers, pictured outside Somerset House. Taxis, he says, are ‘a personal obsession’

By Louise Armitstead

8:00PM GMT 03 Nov 2013

The chief executive of Hailo is not just offering to call you a cab – Jay Bregman wants to make you give up your car. He then plans to alter radically your shopping and eating habits, and maybe your whole lifestyle, too. Buckle up: the “black cab app”, which is driving a revolution in the taxi market in 15 cities around the world, is being heralded as the next big thing in disruptive technology. Read more of this post

Google Employees Confess The Worst Things About Working At Google

Google Employees Confess The Worst Things About Working At Google

JIM EDWARDS NOV. 3, 2013, 12:06 PM 838,581 41

A job at Google. It’s career heaven, right? How could a gig at the biggest, most ambitious tech company on the planet possibly be bad? Well, take a look at this Quora thread, which is being used by current and former Google employees to dish the dirt on working for Big G. We’ve edited some of the standout comments into this excerpt. Read more of this post

Disney and Dish Wrangle Not Over Broadcast Fees, but the Future of TV

November 3, 2013

Disney and Dish Wrangle Not Over Broadcast Fees, but the Future of TV

By BRIAN STELTER

A sweeping distribution deal between television giants, the Walt Disney Company and Dish Network, expired more than a month ago, and there is still no new deal in sight. What is taking so long? Not any disagreement about the billions of dollars that Dish will pay Disney for its programming over the life of the next contract. The two sides agreed about the money a while ago. The squabbling is over something more abstract: digital rights — or to put it another way, control of the future. Read more of this post

Crowdsourcing: Fresh Thinking or Online Fad?

Crowdsourcing: Fresh Thinking or Online Fad?

by Barry Bayus | Oct 31, 2013

Results are encouraging, but long-term effectiveness remains uncertain. Companies that don’t know about crowdsourcing risk falling behind, especially if their success relies on new products or innovative ideas. The concept of getting non-experts to solve problems or do small tasks for free or for the chance to win a prize has been around since the 1700s, when the British government offered the Longitude Prize to whoever could come up with a reliable way for sailors to navigate when their ships got too far from land. Today the Internet makes crowdsourcing much cheaper and easier to implement and extends its reach to diverse populations. While computers can perform some tasks exponentially faster than cerebral synapses, businesses still rely on the human brain for nuanced thinking and creativity. Read more of this post

Ads Scant When Twitter Crosses Borders

November 3, 2013

Ads Scant When Twitter Crosses Borders

By MARK SCOTT

BERLIN — From Manila to Madrid, international consumers now represent more than three-quarters of the 232 million people who regularly use Twitter. The problem is, Twitter is still figuring out how to make money from those users abroad. The company received 26 percent of its total revenue from markets outside the United States in the third quarter, compared with around 17 percent at the end of last year, according to regulatory filings. Read more of this post

NQ Mobile Sales Search Leads to Suburban Beijing Office

NQ Mobile Sales Search Leads to Suburban Beijing Office

NQ Mobile Inc. (NQ), ensnared in allegations of fraud, employs a company that has 15 workers sitting in the corner of a suburban Beijing office registered in the name of another business. Whether that arrangement contributed to “massive fraud,” as research firm Muddy Waters LLC has asserted, or simply illustrates the local idiosyncrasies of young tech companies doing business in China is at the heart of a dispute that has tanked the fast-growing maker of mobile-phone security software. The stock fell 62 percent in the three days after the fraud allegations emerged last month and were down 44 percent through Nov. 1. Read more of this post

Korean government has asked financially-troubled conglomerates to sell off their assets in an effort to improve their liquidity

2013-11-03 16:41

Troubled companies asked to sell off assets

By Yi Whan-woo
The government has asked financially-troubled conglomerates to sell off their assets in an effort to improve their liquidity, according to industry sources Sunday. The Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) recently indicated that there will be no additional financial support for troubled firms this year. The regulators called on financially-unstable conglomerates to sell of their assets quickly instead of bargaining to receive good deals, according to industrial sources. “The authorities are especially urging firms in the shipbuilding and construction sectors to take appropriate action as a number of them are suffering from the prolonged slump in their respective industries,” a market observer said. Read more of this post

KT Corp. CEO Offers to Quit After Prosecutors Raid Headquarters

KT Corp. CEO Offers to Quit After Prosecutors Raid Headquarters

KT Corp. (030200), South Korea’s second-largest mobile operator, said Chief Executive Officer Lee Suk Chae offered to resign after prosecutors raided the company’s headquarters and his home. The board will soon decide the resignation date and discuss a successor to Lee, who also held the role of chairman, the Seongnam, South Korea-based carrier said in an e-mailed statement yesterday. Read more of this post

Six years following bankruptcy, eikaiwa (English conversation) school chain Nova boosts the brand

Six years following bankruptcy, Nova boosts the brand

BY PATRICK BUDMAR

SPECIAL TO THE JAPAN TIMES

NOV 3, 2013

In September, Tokyo-based Jibun Mirai Associe Co. (JMA) announced it would adopt Nova as its official corporate name — 19 months after it acquired the eikaiwa (English conversation) school chain from its previous operators, and almost six years after its well-publicized downfall. It has been a rocky road for the school since the Oct. 26, 2007, bankruptcy announcement that put thousands of foreign-language instructors out of work (and in some cases out of apartments), even necessitating some governments to intervene and give them assistance.

Read more of this post

Coming Soon: A Mahindra Aircraft

Coming Soon: A Mahindra Aircraft

by Seema Singh | Nov 1, 2013

Aerospace is not quite automotive but Anand Mahindra believes that just as Mahindra Jeeps plied Indian roads even as they were being made, Mahindra utility aircraft will fly Indian skies even as runways are being readied. In two years Mahindra Aerospace will begin manufacturing GA-8s in India. GA-8 and GA-10 (the numeric indicates seating capacity) enters its portfolio via the acquisition of Australia’s GippsAero, which makes these aircraft. At the inauguration of its Rs 150-crore aerostructures facility near Bangalore, Mahindra announced a strategic partnership with Aernova of Spain, a Tier I global aerostructures supplier that will transfer technology to Mahindra. Initially, the Bangalore facility will supply components to the aircraft being made by GippsAero in Australia, but it soon plans to enter the global supply chain. At peak capacity the plant could gross Rs 250 crore in revenue and employ 400 people. With commercial aerospace booming even as defence aerospace shrinks, according to a Deloitte 2013 report, Mahindra’s vision to increase India’s footprint in the global sourcing market is not sentimentalism. It hasn’t named its customers but some of the top manufacturers—Boeing, Airbus and EuroCopter—were at the launch and were interested in testing the components. Between aerostructures and utility aircraft—provided it finds a good number of customers for the latter in India—Mahindra Aerospace could well turn out to be a worthy sibling of the group’s automotive business.

‘It’s Cloudy and It’s Gloomy and People are in a Bad Mood’: Rains and a Propane Shortage Leave Corn Farmers Wet Behind the Ears

Rains and a Propane Shortage Leave Corn Farmers Wet Behind the Ears

‘It’s Cloudy and It’s Gloomy and People are in a Bad Mood’

TONY C. DREIBUS and BRETT PHILBIN

Updated Nov. 1, 2013 7:50 p.m. ET

BF-AG121_PROPAN_G_20131101162703

Farmers in the upper Midwest are used to dealing with drought, disease and pests. Now, they are grappling with a different problem: a propane shortage. Unusually heavy rains have left corn from this year’s bumper harvest soggier than normal. Farmers are struggling to acquire enough propane to fuel the giant, oven-like machines that dry corn before it is stored to prevent rot. The dash for the gas has helped send U.S. domestic propane prices to an 18-month high and is slowing the corn harvest, already delayed because of wet weather during planting. The propane shortage is keeping farmers in parts of the upper Midwest from finishing collection of their corn, because they have no way to quickly dry the kernels. About 59% of the U.S. harvest has been completed, behind the historical average of 62% for this point in the year, the U.S. Department of Agriculture said Monday.

Read more of this post

A seemingly “unbridgeable valuation gap” between buyers and sellers continues to stymie big merger activity in the mining sector

November 3, 2013 3:46 pm

Mining valuation gap blocks big mergers

By Neil Hume, Commodities Editor

A seemingly “unbridgeable valuation gap” between buyers and sellers continues to stymie big merger activity in the mining sector while private capital has emerged as a growing force in dealmaking. A total of 165 deals worth only $8bn were completed in the three months to September, down from 236 deals worth $20bn in the same period a year ago, according to figures from consultants E&Y. Read more of this post

Mitsubishi Expands Into Asian Condos as Commodity Profits Slow

Mitsubishi Expands Into Asian Condos as Commodity Profits Slow

Mitsubishi Corp. (8058), Asia’s largest trading company by market value, is expanding into property development in Southeast Asia as the slowdown in China shrinks profits from its commodity businesses. The first project, starting next year, entails building an apartment complex with more than 1,000 units in the Philippines at a cost of 40 billion yen ($405 million), Masahiro Nagaoka, head of township development and construction at Mitsubishi, said in an interview in Tokyo. Read more of this post

Wei Chuan Falls Most Since 2003 After suspending the sale of some edible oil products on concern about the sources of raw materials

Wei Chuan Falls Most Since 2003 After Pulling Oils: Taipei Mover

Wei Chuan Foods Corp. plunged the most in more than 10 years after the Taiwanese food retailer said it suspended the sale of some products amid a government probe into the labeling of edible oils sold to consumers. The stock fell by the maximum 7 percent daily limit to NT$51.90, headed for the biggest loss since March 2003, after the company said yesterday it voluntarily removed some edible-oil products from shelves on concern about the sources of raw materials. The Taipei-based company said it would cooperate with the government investigation, according to the statement it filed with Taiwan’s stock exchange. Taiwan Premier Jiang Yi-huah said Nov. 1 the government will improve systems to prevent substandard foods from reaching the public, the Taipei-based Central News Agency reported. The health ministry discovered cases where oil mixtures were labeled as pure oils through tests on ingredients and additives in cooking oils, the China Post reported Nov. 1. As of yesterday, officials discovered 129 products were in breach of regulations out of 7,665 products tested in spot checks around Taiwan, according to the Ministry of Health and Welfare.

To contact the reporter on this story: Debra Mao in Taipei at dmao5@bloomberg.net

Moe Myint: Myanmar’s go-to tycoon

November 3, 2013 3:16 pm

Moe Myint: Myanmar’s go-to tycoon

By Michael Peel

When Moe Myint strides into his office, he triumphantly brandishes a piece of paper from the Myanmar energy ministry that declares he has won business in four more oilfields. The freshly printed list, composed otherwise of 10 international companies, reveals a second striking truth: when it comes to local oil and gas expertise, Moe Myint is pretty much the only game in town. “The problem is there are so many people contacting me – energy advisers – I don’t know what they want to see me about,” he says, settling down at a desk flanked by screens showing his Gmail account and CNN. “So we are just trying to weed out all these people.” Read more of this post

Wine World Atlas Revised to Include Finger Lakes, China

Wine World Atlas Revised to Include Finger Lakes, China

A rich cabernet blend at a recent reception tasted like a cru classe Bordeaux, but it was a terrific red 2010 from RdV Vineyards Lost Mountain in Virginia. The state gets a nod as a world-class wine region in the latest edition of “The World Atlas of Wine” by Hugh Johnson and Jancis Robinson. For the first time, the authoritative reference allots Virginia wine country, less than an hour’s drive from Washington D.C., a detailed map and two pages of text. Read more of this post

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