Gail’s EBITDA at R17.3 billion and net income at R9.8 billion were 3% ahead of our estimates, reflecting robust operating performance across key segments. We maintain our positive view on the company, while expecting it to continue benefiting from higher gas volumes, further increase in pipeline tariffs and gradual recovery in oil prices.
We prefer GAIL over other gas stocks and retain ADD with a revised SoTP-based TP of R515 ( R490 previously). GAIL’s gas transmission segment EBIT remained steady at R6.3 billion, reflecting stable implied transmission tariffs at R1.28/scm and 2% q-o-q increase in volumes to 102.7 mcm/d. EBIT from petchem segment declined to R1.3 billion from R1.6 billion in Q2FY17, despite 7% q-o-q increase in polymer sales volumes to 0.146 million tonne, reflecting 4% q-o-q decline in realisations to R96/kg.
Polymer production volumes were up 4% q-o-q, led by incremental contribution from PATA II plant. The management expects PATA II to operate at 90% utilisation in FY2018. GAIL’s EBIT from gas trading segment declined modestly to R3 billion in Q3FY17 from R3.3 billion in Q2FY17, despite 3% q-o-q increase in sales volume to 82.8 mcm/d, reflecting marginally lower, albeit normal, marketing margins on LNG volumes.