A consumer company's sales to distributors rose 25% while distributors' sales to shops rose 8%. How much revenue was pulled forward, and what happens next quarter?

About Rs 68 crore of the quarter's Rs 500 crore was pulled forward: shops bought Rs 432 crore, 8% more than last year, and the rest went into distributor stock. Receivables rose Rs 167 crore, more than the Rs 100 crore revenue increase, so cash collected actually fell to about Rs 333 crore. Next quarter, if distributors run stock back to 30 days, sell-in will be about Rs 375 crore, -6% below last year, while sell-out grows 8% as before. The growth was borrowed, and it is repaid next quarter.

Measure demand where it ends. Shops bought 8% more than a year ago, Rs 432 crore against Rs 400 crore; that is the real growth, because a shop orders what customers take off the shelf. Himsagar shipped Rs 500 crore. The difference, Rs 68 crore, is stock the distributors did not need, and it is the amount of this quarter's revenue that belongs to a later one. A chemist who orders three months of shampoo because the salesman offered an extra month of credit has not sold more shampoo; he has bought later. The term for doing this at scale, near quarter end, with credit as the inducement, is channel stuffingPushing more product into distributors than end demand supports, usually with extended credit or discounts, so that revenue is booked early. It reverses when distributors cut their orders..

They tell you how the sale was induced and where the stock went. Receivable days went from 35 to 58, which on Rs 500 crore of quarterly sales is Rs 322 crore outstanding against Rs 156 crore a year ago. Receivables rose Rs 167 crore while revenue rose Rs 100 crore, so Himsagar collected about Rs 333 crore of cash this quarter, less than the Rs 400 crore it collected a year ago on lower sales. Distributors were given longer credit to take the stock, and they have not paid for it. Their inventory went from 30 days to about 42 days of sell-out, Rs 133 crore to Rs 201 crore, which is the same Rs 68 crore counted from the other side. When three measures agree, the number is not a coincidence.

Distributors hold Rs 201 crore of stock and will sell about Rs 432 crore to shops next quarter if 8% growth holds. If they bring stock back to 30 days, Rs 144 crore, they need to buy only Rs 432 plus Rs 144 less Rs 201, about Rs 375 crore. Reported sales would fall 6% year on year in a quarter where real demand grew 8%, and management would blame the weather. The alternative is that distributors keep the fat stock and buy Rs 432 crore, which keeps the headline but leaves receivables stretched and the risk in the channel. Either way, the Rs 68 crore is not growth, and an analyst models it as a reversal, not a new base.

Close with what you would ask. Were there quarter-end schemes or extended credit terms? What were the last two weeks of the quarter as a share of the total? Is any stock returnable, in which case revenue may not even be recognisable? And has the auditor looked at post-period returns and credit notes? The limitation is that distributor sell-out data is reported by the distributors, so corroborate it with retail audit or with your own channel checks before you call it stuffing in print.