The JM Financial report has been submitted to the government, which had mandated the Mumbai firm to advise it on the transaction.

ONGC was planning to spend around Rs 33,000 crore to acquire the government’s 51 per cent stake in HPCL, based on the latter’s current market capitalisation. Going by JM Financial valuation, ONGC’s acquisition bill could shoot up to nearly Rs 55,000 crore, forcing it to either sell its stake in other public sector oil and gas companies to raise capital or make fresh borrowing. But both ONGC and government are expected to negotiate a price which is near to its current market price, said a source.

HPCL’s enterprise value was at around Rs 75,000 crore, taking into account its borrowings and cash and equivalents, at the end of March. SBI Caps, appointed by ONGC, had also prepared a report based on market regulator Securities and Exchange Board of India’s formula that takes into account HPCL’s share price.

Currently, ONGC is debt-free on a stand-alone basis and was sitting on cash and equivalent worth around Rs 14,000 crore at the end of March. ONGC’s equity investments in other energy companies, including Indian Oil, Gail, Petronet LNG and MRPL, is valued at around Rs 50,500 crore. Analysts said since the valuation reports of both consultants has a big gap, ONGC and the government would have to negotiate the final price. “Fixed assets like land, plant and machineries have to be valued at the current market price, investments in subsidiaries, inventories will be taken into account while preparing the report,” said Mahendra Chhajed of Chhajed & Doshi. “Intangible assets like brand, logistic network are also taken into account.”

The government is planning to plug gaps in fiscal deficit with the HPCL stake sale. But experts say with a higher valuation of HPCL, the government would lose whatever it makes through the sale via lower ONGC share price. “When the market regulator already gives a valuation formula, why should ONGC pay a higher price to acquire an asset and hurt its shareholders? Besides, a higher outgo will dent ONGC stock price hurting government, which is its biggest shareholder,” says G Chokkalingam, founder and managing director, Equinomics Research & Advisory Services.

ONGC and JM Financial did not comment on the valuation report.

To fund the HPCL transaction, ONGC plans to sell its 13.5 per cent stake in Indian Oil Corporation and 5 per cent stake in pipeline firm GAIL. After the acquisition by ONGC, HPCL would remain a public sector unit with a separate board and brand identity.