Channel stuffing

Pushing more product into distributors than they can sell, so the sales are booked now and the problem arrives later. Revenue and profit rise in the quarter; the goods sit in a warehouse belonging to somebody who has not paid.

The signature is a fourth quarter that carries far more than its share of the year, with receivable days jumping at the same time. A consumer company booking ₹1,400 crore of its ₹4,800 crore annual revenue in the March quarter is at 29%, and the question is whether the first three quarters averaged the same.

Where a company reports both primary sales to distributors and secondary sales to end consumers, the gap between them is the direct measurement. Most do not, so the proxies have to serve.

What follows is predictable. The next quarter is weak, returns rise, and discounts appear.