Novartis India Ltd’s September quarter results continue to reflect the pressures of investing in the Indian pharmaceutical market. The company’s sales rose by 14.5% to 185 crore. After including other operating income, operating revenue rose by 16% to 196 crore.

In contrast, Novartis India’s material consumption rose by just 11%, indicating that it benefited from better price realizations, or a better product mix, or both. Even as sales rose, Novartis India’s other operating expenses rose by a much faster rate. Employee costs and advertising costs each rose by about 30%.

Indian pharma firms, including multinationals, are aiming at growing their share of the local market. Promotional activities have also risen, as companies attempt to improve visibility in a competitive market.

Thus, Novartis India’s operating profit margin actually fell by over 1 percentage point to 22.8%. It was only after a 46% jump in other income that its net profit managed to rise by a respectable 22% during the quarter. The company’s largest division, pharmaceuticals, did well during the quarter, and surprisingly, so did its generics business, which had been affected by the shift of tuberculosis drug sales to the tender route. The over-the-counter division is emerging as a sizeable contributor, with healthy growth rates.

The company’s parent reported its results on Wednesday and has indicated that India’s sales rose by 33% in constant currency terms during the quarter, which would include revenue from its privately held companies as well. But importantly for Novartis India, it has said that it will continue to expand in emerging markets. India is among its top six emerging markets.

The parent’s strategy will mean that Novartis India will seek to accelerate sales growth, and while that will see operating expenses rise faster initially and even lead to fluctuations in quarterly results, in the longer run, it should see Novartis India’s performance become more robust.

As its initiatives lead to higher sales growth, its expenses will be spread over a larger base of revenue, leading to better margins and earnings growth. Its share price has been underperforming the healthcare index of the Bombay Stock Exchange since mid-September. Till investors are convinced about the certainty of an improvement in its performance, it may continue to underperform.