1. Executive Summary
Macpower CNC Machines Ltd. is undergoing a massive structural transformation from a basic machine tool manufacturer to a technology-led capital goods platform. The company’s strategic pivot towards high-end CNC machines, deep backward integration, and a dedicated focus on import substitution strongly positions it to capitalize on India’s booming manufacturing sector.
2. Company History & Manufacturing Facilities
Macpower was incorporated in 2003 and initially established its foundation by manufacturing basic turning and lathe machines under the “Turner” brand . Following its IPO on the NSE Emerge platform in 2018 and subsequent migration to the main board in 2020, the company has aggressively scaled its operations.
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Existing Facilities: The company operates out of a highly advanced facility located at Metoda G.I.D.C., Rajkot, Gujarat, spread over approximately 4 acres . The facility is fully backward integrated, housing a machine shop, assembly areas, a sheet metal unit, a spindle assembly area, and a powder-coating plant . Current installed capacity stands at 2,500 machines per annum as of Q3 FY26.
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Expansion & Greenfield Project: To accommodate surging demand without bottlenecking growth, the company recently leased 10,000 sq. ft. of industrial space, with plans to lease an additional 50,000 to 1,00,000 sq. ft in the short term. More importantly, Macpower is executing a monumental Greenfield expansion on a 30-acre land parcel . Phase 1 of this project requires a capital expenditure of INR 100 crores to install a capacity of 2,000 machines . The company’s long-term vision aims to reach a total capacity of 5,000 machines in year 1 of the new plant, scaling to 10,000 machines within five years, dedicating 50% of this new facility explicitly to defence and aerospace manufacturing .
3. Segments, Products, and Revenue Contribution
The company has successfully expanded its product portfolio to over 380 variants and models, launching 37 new models in FY25 alone, serving 27 distinct industry segments globally.
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Product Categories: The product basket covers Turning Centers, Vertical Machining Centers (VMC), Horizontal Machining Centers (HMC), Twin Spindle VMCs, Turn-Mill Centers, Vertical Turret Lathes (VTL), Drill Tap Centers (DTC), Double Column Machines (DCM), and advanced 5-Axis machines.
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Revenue Shift (Premiumization): A core driver of recent profitability is the “NEXA” vertical, which focuses on high-end, premium machines to substitute imports . This premium segment now contributes a substantial 39% to the company’s pending order book . Consequently, the average realization per machine has increased from approximately INR 18.28 lakhs to nearly INR 20 lakhs year-over-year.
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End-User Industries: Macpower caters to Automobile, Aerospace, Defence, Agriculture, Railways, Medical, and General Engineering . The company is a proven supplier to critical national assets, supplying HMCs to the Engine Factory Avadi for T90 Battle Tank parts, and participating in prestigious projects like DRDO-Brahmos and ISRO-Chandrayaan
4. Promoters, Management, and Remuneration
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Background: The company is spearheaded by Mr. Rupesh J. Mehta (Chairman & Managing Director) and Mr. Nikesh J. Mehta (Whole-Time Director & CEO) . Both leaders bring nearly three decades of experience in the machine tool industry . The board recently approved the re-appointment of both directors for a further five-year term effective October 2025, ensuring management continuity.
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Holdings and Pledging: The promoter and promoter group hold a commanding 73.17% stake in the company . This extraordinarily high holding ensures incentives are perfectly aligned with minority shareholders. Crucially, Macpower operates with zero promoter pledging, underscoring exceptional financial stability .
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Remuneration: During FY25, the company disbursed total remuneration of INR 29.81 crores to its workforce, reflecting an ongoing commitment to human capital retention and skill development.
5. ESOP/ESPS and Profitability Impact
An analysis of the shareholding pattern reveals an extremely minimal ESOP/ESPS presence, constituting approximately 0.17% to 0.26% of total outstanding shares. Given this fractional dilution, ESOP issuances have a negligible impact on overall operating profitability and EPS. The company primarily utilizes robust cash accruals to drive value rather than resorting to heavy equity dilution for compensation.
6. Quality of Earnings, Other Income, and Return Ratios
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Return Ratios: Macpower operates with industry-leading capital efficiency. For FY25, Return on Capital Employed (ROCE) stood at 23.75%, while Return on Equity (ROE) remains highly lucrative, consistently outperforming peers . The asset turnover ratio currently hovers around 3x and has the operational leverage to reach 5x within the current plant footprint .
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Quality of Earnings: Earnings are driven organically by core operations. In FY25, operating revenue hit INR 261.82 crores, while “Other Income” was a modest INR 3.55 crores, dropping from INR 1.36 crores in FY24. This low reliance on treasury or non-operating income validates the high quality of reported earnings.
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Margins: The company boasts the highest EBITDA margins among its domestic competitors . EBITDA margins improved from 14.70% in FY24 to 15.87% in FY25 , and further expanded to a record 18.08% in Q3 FY26.
7. Consolidated Quarterly Results (QoQ and YoY Comparison)
The company has demonstrated explosive growth in its recent quarters. Below is a detailed tabular comparison of the latest available results (Q3 FY26 ending December 2025).
Q3 FY26 recorded the highest-ever quarterly performance in the company’s history across Revenue, EBITDA, and PAT . The sharp 515 bps YoY expansion in EBITDA margins in Q3 FY26 is directly attributed to operating leverage, an optimized high-margin product mix, and the cost benefits of backward integration .
8. Deep Dive: Working Capital, Inventory Management, and Cash Flows (Updated for Q2 FY26)
· Working Capital Expansion (Q4 FY25 vs. Q2 FY26): The company is currently experiencing a temporary but expected stretch in its working capital cycle. This is a natural byproduct of its explosive scale-up and the execution of a massive order pipeline.
o Inventories: Inventory levels surged from approximately INR 105.79 crores at the close of Q4 FY25 (March 2025) to INR 132.89 crores by the end of Q2 FY26 (September 2025).
§ Explanation: This increase of ~INR 27 crores is a strategic buildup rather than a demand slowdown. With the unexecuted order book expanding to INR 375 crores and manufacturing capacity ramping up from 2,000 to 2,500 machines, Macpower is stockpiling raw materials to hedge against supply chain shocks, avoid production bottlenecks, and ensure rapid execution of its premium NEXA and double-column machine orders.
o Trade Receivables: Receivables increased substantially from INR 34.32 crores in Q4 FY25 to INR 54.72 crores at the end of Q2 FY26.
§ Explanation: This ~INR 20.4 crore rise directly mirrors the massive jump in top-line scale (H1 FY26 revenues grew 28.1% YoY). Furthermore, the company’s aggressive push into institutional, aerospace, and defense tenders often entails slightly longer realization and credit cycles compared to its traditional retail MSME clients.
· Cash Flow Dynamics (H1 FY26):
o Despite the heavy working capital absorption required to fund this growth—where inventory and receivables locked up over INR 44.5 crores in H1 FY26—Macpower successfully generated positive Net Cash from Operating Activities of INR 0.83 crores (INR 82.96 Lakhs).
o This marks a strong fundamental improvement from the negative operating cash flow of INR 2.31 crores reported in the same period last year (H1 FY25). The robust operating profit before working capital changes (INR 22.37 crores in H1 FY26) highlights that core profitability is strong enough to internally fund the expanding working capital cycle without resorting to heavy external debt.
· Cost & Energy Management:
o To structurally manage overheads and protect margins while holding higher inventory, the company has heavily optimized utility expenditures. The recent expansion of its rooftop solar plant to a total capacity of 750 KW enables approximately 90% daytime power savings. This permanently reduces fixed energy costs, offsetting the holding costs associated with the ~INR 133 crore inventory base.
9. Capex Details and Timelines
Macpower is currently accelerating its capital expenditure cycle to meet demand.
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In 9M FY26, Capex increased to INR 12.41 crores compared to INR 7.81 crores in the prior year period.
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Greenfield Megaproject: A massive 30-acre Greenfield plant serves as the cornerstone of future growth.
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Phase 1 requires an estimated INR 100 crore Capex to install a capacity of 2,000 machines.
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Timeline: Total manufacturing capacity is slated to reach 5,000 machines in year 1 of the new plant, eventually scaling to 10,000 machines within a 5-year timeline.
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10. Future Prospects and Optionality
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Order Book Visibility: The unexecuted order book sits at an impressive INR 375 crores as of Dec 2025.
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Institutional Tender Pipeline: Macpower has submitted domestic bids worth INR 639 crores and high-margin defence/aerospace bids worth INR 319 crores, bringing the total bid pipeline to a staggering INR 958 crores.
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Global Expansion & Tech Transfers: During the EMO Exhibition in Germany, Macpower initiated MOUs with double-digit companies from Europe, Japan, Korea, and Taiwan for technology transfers and co-branding . Five companies have been shortlisted to develop niche products for semiconductors, medical devices, and EMS sectors, offering massive optionality for future revenue streams .
11. Acquisitions, Synergies, and Drawbacks
Rather than outright M&A acquisitions, Macpower is prioritizing organic capacity expansion and strategic technological joint ventures. The synergy derived from global JVs allows Macpower to instantly upgrade its technological know-how, bypass years of R&D, and avoid the bloated goodwill and cultural integration drawbacks typically associated with buying outright competitors.
12. Red Flags, RPTs, Contingent Liabilities, and Litigations
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Exceptional Item: In Q4 FY25, the company reported an exceptional net loss of INR 76.70 lakhs (INR 7.67 million) due to a fire at the Rajkot facility that impacted a specific portion of inventory. This was a one-off event and was mitigated by insurance claims.
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Related Party Transactions (RPT): RPTs are strictly in compliance with Section 177 and 188 of the Companies Act, conducted at arm’s length, and fully disclosed without raising corporate governance concerns.
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Litigation/Liabilities: The Secretarial Audit and Statutory Audit reports are clean, indicating an adequate internal financial control system and no material contingent liabilities or debilitating litigations.
13. Competition: Navigating the Domestic “Red Ocean” and the Chinese Threat
To fully understand Macpower’s competitive trajectory, the machine tool market must be bifurcated into two distinct battlegrounds: the commoditized domestic market and the high-value import substitution market.
A. The Domestic Landscape (The “Red Ocean” of Basic CNCs) Historically, Macpower and its domestic peers (such as Jyoti CNC, Ace Micromatic, and BFW) battled for market share in standard Turning Centers and basic Vertical Machining Centers (VMCs).
· Saturation: This segment has reached maturity. India currently fulfils an impressive 90% of its turning machine demand and 80% of its basic VMC demand domestically.
· Margin Compression: Because the technology for these basic machines is widely accessible, pricing power is limited. Growth in this segment is purely a volume game. Macpower’s advantage here relies heavily on its backward integration—producing its own sheet metal and spindles—which allows it to squeeze out higher EBITDA margins (18.08% in Q3 FY26) from commoditized products compared to less integrated peers.
B. The China Factor and the Import Gap (The “Blue Ocean”) The true analytical focal point for Macpower’s future growth lies in the complex, heavy-duty machinery segment—specifically Horizontal Machining Centers (HMCs), Vertical Turret Lathes (VTLs), Double Column Machines, and 5-Axis CNCs. India remains heavily reliant on imports for approximately 50% of these requirements. This import market is highly polarized:
· The High End (Germany, Japan, Taiwan): These machines offer exceptional precision but come with prohibitive capital costs and expensive, slow after-sales service.
· The Low-Cost Threat (China): Chinese manufacturers benefit from massive economies of scale, state-subsidized raw materials, and an artificially lowered cost of capital. They frequently engage in aggressive price dumping, offering heavy machinery at capital costs that Indian manufacturers historically struggled to match.
C. Macpower’s Strategic Counter-Attack (The NEXA Pivot) Macpower is not attempting to compete with China purely on upfront sticker price, as that is a race to the bottom. Instead, the company has deployed a highly calculated structural defense:
1. Total Cost of Ownership (TCO) & Downtime Mitigation: A CNC machine is a revenue-generating asset for an MSME or a defense contractor. If a cheap Chinese machine breaks down, waiting weeks for imported spare parts or a specialized technician destroys the buyer’s return on investment. Macpower attacks this vulnerability by offering “Make in India” proximity. Under its premium NEXA vertical, Macpower provides equivalent heavy-duty machines (like double columns) with immediate local service, rapid spare part availability, and proprietary Macatrol controllers. This localized TCO advantage severely undercuts the appeal of cheaper Chinese imports.
2. Institutional & Defense Firewalls: The geopolitical shift is creating a massive regulatory moat. Critical sectors like Defense, Aerospace, and ISRO are increasingly mandated to indigenize their supply chains and actively phase out Chinese-origin manufacturing equipment due to security and reliability concerns. By successfully pre-qualifying for projects like DRDO-Brahmos and supplying HMCs for the T90 Battle Tank, Macpower has secured a highly lucrative, zero-competition captive market where Chinese players are structurally banned from bidding.
3. Global Tech Transfers: To rapidly close the technological gap with Taiwan and Germany without decades of R&D, Macpower is utilizing its strong balance sheet to sign Joint Ventures and tech-transfers with European and Japanese firms. This allows them to offer top-tier, globally competitive precision while manufacturing at Indian cost structures, perfectly positioning them in the “sweet spot” between overpriced European machines and unreliable Chinese alternatives.
14. Does the Company have the “Right to Win”?
Macpower’s “Right to Win” is not based on merely participating in the broader capital goods upcycle, but rather on a highly defensible, structural shift in its business model. This competitive edge is anchored by four distinct pillars:
1. Strategic Positioning (The Import Substitution Moat): While the domestic market for basic turning machines is highly fragmented and saturated, Macpower is aggressively pivoting toward the exact segments where India is deficient—HMCs, VTLs, and 5-Axis machines. By targeting the ~50% import dependency currently dominated by China and Taiwan, Macpower is operating in a high-realization whitespace with significantly lower domestic competition. Their “NEXA” premium vertical is essentially a captive growth engine.
2. Unmatched Margin Leadership via Backward Integration: Macpower is the most backward-integrated player in its peer group, manufacturing its own sheet metal enclosures, precision spindles, and proprietary CNC controllers. This insulates the company from external supply chain bottlenecks and allows them to maintain the lowest direct cost structure in the industry. This is mathematically proven by their industry-leading EBITDA margins, which recently expanded to 18.08% in Q3 FY26. This margin buffer gives them massive pricing power; they can choose to either undercut competitors to win market share or reinvest the excess cash into R&D.
3. High Barriers to Entry (Institutional Qualifications): Capital goods is a trust-based industry. Macpower has already crossed the arduous, multi-year threshold of becoming a pre-qualified vendor for critical national infrastructure, including DRDO (Brahmos), ISRO (Chandrayaan 3), and various defense engine factories. These institutional approvals create a deep, durable moat that unorganized or newer players simply cannot replicate in the short to medium term.
4. Financial Antifragility: Scaling manufacturing capacity from 2,500 to 10,000 units typically destroys a company’s balance sheet through excessive debt. Macpower, however, is funding its 30-acre Greenfield megaproject primarily through robust internal cash accruals. Operating as a net-debt negative entity provides them with the “antifragility” to survive severe macroeconomic downcycles that would bankrupt highly leveraged competitors.
15. Risk Factors Affecting Future Growth
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Execution Risk: Scaling from a 2,500-unit capacity to 10,000 units involves massive operational complexity. Any delay in the 30-acre Greenfield project could stifle revenue targets.
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Cyclicality of Capex: The machine tool industry is highly sensitive to macro-economic capital expenditure cycles. A slowdown in auto, defence, or general engineering capex directly impacts order inflows.
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Technological Obsolescence: As the industry moves rapidly toward Industry 4.0, robotics, and advanced 5-axis machining, any failure by Macpower’s R&D or its global JV partners to iterate quickly could result in a loss of market share to superior European technology or cheaper Chinese imports.
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Raw Material Volatility: Fluctuations in steel, electronic components, and imported sub-assemblies can pressure the strictly controlled operating margins if costs cannot be fully passed onto consumers.
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Summary of Q3 & 9M FY26 Earnings Conference Call:
1. Financial and Operational Highlights (Q3 FY26) Macpower delivered its highest-ever quarterly performance across all major financial metrics.
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Revenue: Stood at INR 86.15 crores, registering a robust 43% YoY growth.
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Profitability: EBITDA surged by 99% YoY to INR 15.58 crores, with margins expanding to a record 18.08%. PAT reached INR 9.79 crores, a massive 119% YoY jump, yielding a PAT margin of 11.37%.
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Realizations & Order Book: Average machine realization increased from INR 18.28 lakhs to roughly INR 20 lakhs YoY. The unexecuted order book sits at a strong INR 375 crores (17% growth), with total submitted bids reaching INR 958 crores (including INR 319 crores in defence/aerospace).
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Product Mix Shift: The premium “NEXA” vertical now contributes 39% to the pending order book, up from negligible levels last year.
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Capacity Bottlenecks & Land Update: To avoid stifling near-term growth while waiting for its new 30-acre greenfield plant, the company leased 10,000 sq. ft. of space and is finalizing another 50,000 to 1,00,000 sq. ft.. The new greenfield land token advance is paid; final handover is expected by early March, pending a new Gujarat state policy announcement.
2. Deep Analysis & “Reading Between the Lines” of the Q&A
Analyzing the management’s responses reveals several unspoken strategies, hidden strengths, and calculated risks:
A. The “Good” Problem: Artificially Suppressed Growth
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What was said: Management repeatedly stated they are not aggressively pursuing Tier-1 clients or launching fully developed R&D products because they lack the assembly space. For example, a high-value NEXA machine takes double the floor space and assembly time of a standard machine.
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Reading between the lines: Macpower is currently operating with a severe “capacity handicap,” actively leaving money on the table. The demand environment is so strong that their primary risk is execution, not order inflow. The decision to lease up to 1,00,000 sq. ft. of temporary rental space is a defensive stop-gap to ensure they don’t lose market share or momentum while waiting 12-18 months for the new greenfield plant to become operational.
B. Fierce Protection of Equity (The “JV” Reality)
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What was said: The company is in advanced talks with European tech partners. However, management explicitly denied these partners’ requests for equity investments, offering a maximum of 5% equity and opting instead for a pure technology transfer and royalty model. They prefer taking on short-term debt to fund the new plant.
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Reading between the lines: Management (who holds ~73% of the company) believes the current stock valuation fundamentally underprices their future growth. They view giving away equity to foreign partners right now as far too expensive. By choosing short-term debt and royalty payments over equity dilution, they are signaling extreme confidence in their internal cash flow generation and a desire to capture 100% of the upside of the upcoming capital goods super-cycle.
C. Working Capital Masterstroke (The NBFC Tie-up)
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What was said: Finance costs spiked this quarter. Management explained this was due to a new internal scheme where they tied up with an NBFC to help customers finance their machine purchases.
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Reading between the lines: In previous quarters, Macpower faced issues with delayed bank realizations from MSME clients. By taking a slight hit on the finance cost line (paying the NBFC), Macpower effectively transferred the credit risk and collection delays off its own balance sheet. Because they concurrently raised the average realization price of the machines, this finance cost is practically passed on to the buyer. This ensures highly liquid cash flows, allowing them to fund capacity expansions internally.
D. Margin Expansion Playbook: The Path to 25%
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What was said: Management guided for a 25% EBITDA margin once the new plant is fully operational.
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Reading between the lines: The leap from 18% to 25% is not just hopeful thinking; it is mathematically structured on three pillars:
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Operating Leverage: Fixed costs will dramatically shrink as a percentage of revenue once capacity scales from 2,500 to 10,000 machines.
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Product Premiumization: The massive 39% order book share of NEXA machines (priced between INR 30 lakhs to INR 1.5 crores) carries significantly higher margins than their legacy INR 15 lakh turning machines.
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Defence Focus: Defence tenders carry the highest margin profile in their portfolio.
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E. Dismissing the China Threat & Regulatory Tailwinds
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What was said: Management dismissed Chinese imports as “tiny Chinese toys” that last only 1-2 years compared to Macpower’s 5-10 year lifespan. They noted Chinese machines hold less than 5% market share by value in their segments.
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Reading between the lines: Macpower is entirely unfazed by low-cost dumping. Furthermore, management expects upcoming Bureau of Indian Standards (BIS) regulations, with a hard deadline around September-October, to effectively choke off the remaining unorganized “Completely Knocked Down” (CKD) imports from China. This regulatory moat will act as a major catalyst for domestic players in H2 FY27.
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A Good analysis video to Watch:
Latest Presentation:
https://nsearchives.nseindia.com/corporate/MACPOWER_10022026180205_InvestorPresentationforQ3FY26.pdf
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Compiled notes from Here & There, No Buy/Sell Recommendation
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