India Ratings & Research (Ind-Ra) has affirmed Indian Oil Corporation (IOC) long-term issuer rating at 'AAA'. The outlook is stable. The ratings continue to reflect IOC's position as India's largest oil refining and marketing company and the dominant position occupied by public sector companies (PSCs) in the national oil industry.

The agency equates IOC's ratings with those of the government of India which holds a 68.57% shareholding in IOC, reflecting the company's strong linkage with and strategic importance to the state.

Ind-Ra expects the state to continue to provide support to IOC, given its role as the government's extended arm for policy implementation. GoI's policy has been to set tariffs for some refined oil products at levels lower than market prices, leading to under-recoveries. However, GoI has ensured that downstream PSCs' net annual under-recoveries are kept under control through financial support and direction to upstream PSCs to supply feedstock at a discount. The government compensates downstream PSCs through direct budgetary support.

The ratings factor gross under-recovery burden reducing to Rs 729.38 billion in FY14 (year end March) from Rs 857.93 billion in FY13. This was led by deregulation of petrol, and the staggered price increases of HSD (diesel) leading to its closer alignment with market prices, the decline in global crude prices and the relative rupee stabilisation.

Shares of the company declined Rs 2.4, or 0.64%, to trade at Rs 372.90. The total volume of shares traded was 36,116 at the BSE (1.35 p.m., Monday).