Fitch Ratings has affirmed India-based Hindustan Petroleum Corporation (HPCL) long-term foreign-currency Issuer Default Rating (IDR) at 'BBB-'. The outlook is stable.

Fitch equalises HPCL's rating with that of the state of India, its largest shareholder with 51.1% stake, due to their strong operational and strategic linkages, in line with Fitch's Parent and Subsidiary Linkage methodology. Fitch believes the linkages remain strong despite the deregulation of diesel prices in 2014. HPCL continues to retail kerosene at government-prescribed prices that are lower than market prices, similar to other state-owned oil marketing companies, Indian Oil Corporation (BBB-/Stable) and Bharat Petroleum Corporation.

Fitch may reassess HPCL's linkages with the state, if the state-owned oil marketing companies' policy role weakens due to further deregulation of prices for petroleum products. While assessing the linkages, Fitch will also consider the government's commitment to maintaining market-based prices for already deregulated products when oil prices increase.

We expect the HPCL's gross refining margin to narrow to around USD5 per bbl in FY17 and less than USD5 per bbl in FY18, which may reduce the company's profitability over the next two years. The company's gross refining margins improved to USD 6.7 per barrel (bbl) during the financial year ending Mar. 31, 2016 (FY16) (FY15: USD2.8 per bbl).

Shares of the company gained Rs 6.25, or 0.68%, to trade at  Rs 927.70.  The total volume of shares traded  was  82,658 at the BSE (1.59 p.m., Tuesday).