Ashot in 2025: The order wave is already here, and now the test is throughput and cash

Company Introduction

Ashot is not just another metalworking plant, and it is not just another generic defense story. It is an industrial company with two core engines that currently operate on very different rhythms: the defense engine, built around drivetrains, gearboxes, and MRO work for armored vehicles, and the aerospace engine, built around critical components, jet-engine shafts, and complex assemblies. Sitting above both is the U.S. story through Reliance Gear, which is supposed to become a growth arm in America, but as of 2025 still looks more like an improvement project than a clean earnings engine.

What is working now should be stated early. Sales rose in 2025 to ILS 458.7 million from ILS 393.6 million in 2024, gross profit increased to ILS 104.4 million, operating profit jumped to ILS 74.2 million, and EBITDA rose to ILS 92.7 million. The fourth quarter also stayed positive, with ILS 113.2 million of revenue, ILS 18.1 million of operating profit, and ILS 22.8 million of EBITDA. This is no longer a story that lives only in presentations. The improvement is already visible in the reported numbers.

But that is only half the picture. Ashot’s bottleneck today is not demand. If anything, demand is the strong side of the story. The active bottleneck is the company’s ability to translate that order wave into production, deliveries, and cash without opening wider and wider gaps in working capital. That was already visible in 2025: receivables jumped to ILS 208.4 million from ILS 134.6 million, average customer credit rose to ILS 115.0 million from ILS 69.8 million, and average customer days increased to 93.1 from 67. Total inventory also rose to ILS 257.1 million. In plain terms, the company is already scaling activity, but part of the customer base, especially the Ministry of Defense, is not paying on the same timetable.

That is also what a first read can miss. Anyone looking only at the ILS 2.6 billion headline for backlog plus expected orders, or only at the property revaluation, could conclude that the story is already settled. It is not. Part of the future-order figure rests on framework agreements rather than hard commitments, part of aerospace relies on customer forecasts in dollars, and the revaluation strengthened equity but did not put cash into the business. That is why 2026 looks like a proof year: the company now has to prove not only that it can collect orders and widen capacity, but that it can preserve earnings quality and cash discipline while doing so.

There is also an important market angle worth surfacing early. As of April 3, 2026, the share was trading around ILS 106, with short interest at 0.92% of float and SIR at 1.31. This is not a market setup that signals aggressive downside positioning against the company. Short positioning is actually fairly calm. Through that lens, the market looks more like it is waiting to see whether 2026 really turns the order wave into sales, profit, and cash without a balance-sheet snag.

The Economic Map Right Now

Those two charts clarify the core point. Ashot is first and foremost a defense-led growth story, and only after that an aerospace and U.S. story. Aerospace and the American presence still matter, but they are not the main reason profit jumped.

Events And Triggers

The events that changed how Ashot should be read between late 2025 and early 2026 are relatively concentrated. This is not a story scattered across dozens of unrelated threads. In practice there are four clear axes: the defense order wave, the capacity buildout, the equity raise, and the deepening aerospace contract base.

The first trigger: the gearbox-overhaul project for the Merkava and Namer is no longer an idea. Initial LLI orders arrived in June 2025, a 10-year framework worth ILS 560 million was signed during 2025, and in January 2026 the company reported new orders of ILS 34 million within the project, plus another ILS 27 million that was in final approval stages for receipt by the end of the first quarter of 2026. In February 2026, another ILS 131 million order arrived for delivery in 2027 through 2032. Cumulative orders in the project had already reached ILS 253 million. This is no longer theoretical backlog. It is demand that is already moving into actual purchase orders.

The second trigger: the Ministry of Defense is not only ordering more. It is also signaling that Ashot should build capacity around that demand. The company describes a strategic partnership with the Ministry to establish production infrastructure on a shared-investment basis, and says five new overhaul lines were already set up in 2024. The economic meaning matters: when the strategic customer is not only buying, but also pushing for capacity infrastructure, it is effectively saying the demand should persist long enough to justify physical adaptation.

The third trigger: in January 2026 the company raised ILS 120 million in a private placement. Management did not present this vaguely. The proceeds are intended for mergers and acquisitions, support for expected growth, and investments in machinery, automation, and production infrastructure. In other words, the raise is not just “added flexibility.” It is also an admission that capturing the current wave requires capital before the system fully funds itself.

The fourth trigger: on the aerospace side, the company is supported by long-term agreements with an estimated remaining value of USD 266.8 million. That includes USD 145.0 million in electromechanical systems and stabilizers for 2026 through 2032, USD 41.9 million in jet-engine shafts for 2026 through 2035, USD 2.6 million in helicopter rotor balancing weights for 2026 through 2027, and USD 77.3 million in Airbus A350 overhead-bin assemblies over the aircraft’s life. That gives real commercial depth to the activity, but one point matters: these agreements are customer-demand driven, not minimum-volume commitments.

What matters here is not just the total. Defense gives the heavier layer in 2026 through 2028, while aerospace adds more long-tail depth. That is a healthy mix, but it also means the near term will be judged mainly through defense execution and the working-capital burden it creates.

Efficiency, Profitability And Competition

The main insight is that the 2025 profitability improvement came mostly from the right place, but not every part of the group improved together. Defense posted a real jump. Aerospace saw some quality erosion in margin. And in the U.S., Reliance has not yet delivered a clean operating thesis.

Defense: a real improvement, not just more volume

The defense segment reached ILS 341.2 million of external sales in 2025, up from ILS 271.1 million in 2024. Segment gross profit rose to ILS 81.7 million, and gross margin jumped to 23.9% from 16.9%. The company’s explanation sounds coherent and matches the numbers: the defense product mix improved, operational synergies between projects showed up, and the ongoing efficiency plan contributed as well. Put simply, this was not only more revenue. It was also better profitability on that revenue.

It also matters where that improvement came from. Three product groups each represented more than 10% of total group sales: gearboxes for armored vehicles, including spares and overhaul, at ILS 174.4 million; suspension and final-drive systems at ILS 86.2 million; and IDC kits at ILS 47.1 million. That means the improvement is not spread thinly across dozens of small items. It is concentrated in areas where Ashot has both operating depth and strategic customer relevance.

Aerospace: demand looks good, but terms are less friendly

In aerospace and complex assemblies, external sales stood at ILS 104.9 million in 2025 versus ILS 107.2 million in 2024, meaning a slight revenue decline at the same time the company is highlighting a favorable market backdrop. The more important point is margin. Segment gross profit was ILS 18.5 million, and gross margin fell to 17.6% from 20.9%. The company attributes that to two specific reasons: a weaker dollar, which makes shekel labor costs more expensive in dollar terms, and a one-off compensation payment received in 2024 for accelerated deliveries that did not repeat in 2025.

This is where earnings quality becomes important. The aerospace market is indeed hungry for reliable suppliers, and the company explicitly points to quality and lead-time problems at other suppliers. But aircraft OEMs also continue pressing subcontractors on price. So the real picture is not “strong demand equals strong margin.” It is “strong demand supports activity levels, while customer bargaining power still compresses part of profitability.”

Reliance: the U.S. story is still unfinished

Reliance Gear is exactly where it is important not to confuse strategic presence with a proven economic engine. Total sales there, including intercompany business, were ILS 48.5 million, but gross profitability fell to only 8.7% from 23.3% in 2024. The company itself replaced the CEO in the second half of 2025 and plans workforce optimization, operational efficiency, and stronger sales and marketing in 2026. That is a polite way of saying what the numbers already say: the asset exists, but it still needs fixing.

That chart shows why 2025 looks strong but not fully clean. The defense engine improved sharply. Aerospace remained profitable, but less so. Reliance moved the other way. So the right read is not “the whole group is flourishing.” It is “one large engine pulled the group higher, while the other two still need fresh proof.”

Cash Flow, Debt And Capital Structure

The most important number in this section is not whether Ashot is over-levered. It is not. The important number is the gap between profit and cash, and the way management chose to use cash in a year of rising demand.

Cash flow: profit exists, but working capital is swallowing part of the picture

Operating cash flow came in at ILS 84.1 million versus ILS 96.0 million in 2024. That is still a positive and solid number, but it is less comfortable than the earnings headline suggests because working capital expanded materially. Receivables rose to ILS 208.4 million and total inventory to ILS 257.1 million. The company explicitly says the slowdown in Ministry of Defense payments toward the end of 2025 was a major factor. In practice, part of the growth was financed through Ashot’s own balance sheet.

This is where cash framing matters. Because the main thesis here is financial flexibility and the ability to absorb an order wave without creating a cash squeeze, the right framework is all-in cash flexibility, not a normalized cash-generation estimate based on maintenance capex that the company does not disclose. In this case, what remains after real cash uses is the point that matters.

In 2025 Ashot generated ILS 84.1 million from operations, but spent ILS 28.6 million on fixed assets, ILS 40.0 million on dividends, and ILS 4.3 million on lease principal. That leaves about ILS 11.2 million of all-in cash flexibility before the reduction in short-term bank debt. Once the net ILS 16.0 million paydown of short-term bank debt is included, the residual turns negative. That helps explain why year-end cash was only ILS 5.8 million. This is not a liquidity crisis. It simply means the company invested, distributed cash, and reduced bank debt in the same year that working capital expanded.

Debt: the balance sheet looks comfortable, and the covenant is nowhere near pressure

On the positive side, the bank-debt layer does not look stressed. Short-term bank credit fell to ILS 51.9 million from ILS 68.0 million. Of that, about ILS 19.4 million carries prime minus 0.3% to 0.35%, and about ILS 32.5 million is dollar-linked at SOFR plus 1.1%. There is no large stack of long-term bank debt, and the key covenant is very wide: equity-to-assets must not fall below 20% or ILS 60 million, whichever is higher, while in practice the company stands around 55% and ILS 562.5 million of equity. In addition, the company has about ILS 331.1 million of unused short-term credit facilities, including guarantees.

So if one looks only at the banking layer, it is hard to argue that Ashot is under financing strain. If anything, it looks comfortable. But that still does not resolve the cash-conversion question. The distinction matters: a company can be very far from covenant pressure and still discover that new orders require much more working capital before they release cash.

Equity: the revaluation strengthened the cushion, but not value accessibility

In 2025 the company revalued its land and buildings and added ILS 192.3 million to property value. The revaluation reserve rose to ILS 291.8 million from ILS 174.1 million, and the carrying value of land and buildings reached ILS 414.1 million. The attached appraisal also carries an important detail: the appraiser valued the ownership rights at ILS 412.8 million, but applied a 15% discount because the site is large and harder to realize.

This is exactly where created value has to be separated from accessible value. The revaluation is real, and it does strengthen equity. But it does not fund inventory, collect receivables, or shorten Ministry of Defense payment timing. So Ashot should not be read as if the balance-sheet improvement solved the cash question. It did not.

Those charts capture the heart of the cash story. Ashot did not burn cash in the core business. It carried more customers and more inventory while continuing to invest and distribute cash. That is a meaningful difference, but it is also the key yellow flag for 2026.

Outlook

First non-obvious finding: 2026 is not a demand year. It is an execution year. With ILS 1.191 billion of hard backlog and another ILS 1.417 billion of expected orders, the question is no longer whether there is enough work. The question is how much of it moves through production on time, how much turns into reported revenue, and how much settles in cash.

Second non-obvious finding: the ILS 2.608 billion headline slightly overstates certainty if it is not broken down properly. Defense is heavier in the near term, while aerospace provides more long-tail depth. On top of that, expected orders are not hard customer commitments. Anyone treating the whole figure as equivalent to signed backlog is reading the company too aggressively.

Third non-obvious finding: management is already operating on the assumption of continued sharp growth. The new overhaul lines, the statement that capacity can be expanded by up to 50% through non-material adjustments, and the ILS 120 million private placement all look like a bridge being built toward the next scale. That is positive, but it also means the company is assuming the wave is not temporary.

Fourth non-obvious finding: aerospace, which should be a diversification engine, may remain a near-term drag on overall margin quality. As long as the dollar remains weak and aircraft customers maintain pricing pressure, it is hard to build a short-term case that aerospace will be the next margin driver.

What must happen over the next 2 to 4 quarters

The first requirement is throughput proof. The company already operates the Ashkelon site on three shifts, with about 290 people on the main shift, 55 to 65 on the second, and about 10 on the third, while the U.S. site runs two shifts. That means capacity is already more stretched than before. If management says it can expand output by about 50% through non-material adjustments and added labor, the next few reports need to show that claim translating into deliveries, not just into plans.

The second requirement is working-capital discipline. Formal credit terms with the Ministry of Defense remain 45 days, but in practice average customer days jumped to 93.1. That cannot become the new normal if the company wants growth to remain easy to fund. So the most practical question for 2026 is not whether more orders will arrive. It is whether customer days and receivable intensity stabilize.

The third requirement is inventory quality. The company says that under some framework agreements it plans around customer forecasts and purchases long-lead materials before binding orders arrive, even though it has reduced this practice materially in recent years. In an industrial business with lead times of 12 to 24 months for bearings, 12 to 18 months for forged parts, and 8 to 16 months for tungsten powder, that is understandable. But it is also exactly where customer optimism can become supplier-held inventory for too long.

The fourth requirement is checking the margins in aerospace and the U.S. If aerospace continues to face the combination of a weak dollar and customer pricing pressure, and Reliance does not improve after the CEO change and efficiency program, too much of the burden will remain on the defense engine. That is not necessarily bad in the short term, but it does leave the company more concentrated and less balanced.

The right label for the year: a proof year, not a clean breakout

The right way to frame 2026 is as a proof year. It is not a reset year, because something is already working at Ashot. Defense is strong, profitability improved, and the company’s most important strategic customer is signaling multi-year demand. But it is also not a clean breakout year, because the company still has to prove that expansion will not come at the expense of cash quality, and that the diversification engines will actually stabilize.

It is also important to ask what the market could miss in the near term. The first number that can mislead positively is growth in backlog and new orders if it is not accompanied by better collection timing. The second is post-revaluation equity if that is read as equivalent to immediate financial flexibility. On the other hand, the market could also miss something positive: short positioning is low and the company is very far from covenant pressure, so there is no current market or banking signal of distress.

Risks

The first risk is customer concentration. The Ministry of Defense accounted for 67.7% of revenue in 2025, up from 64.0% in 2024 and 57.5% in 2023. In addition, under the gearbox manufacturing agreement, sales of gearboxes to other customers require prior approval from the Ministry. The company says it has not yet needed to obtain such approval in practice, but the structure itself underlines dependence.

The second risk is working capital. When an industrial company grows quickly, it often looks strong in the income statement before the balance sheet starts responding. That is already happening here. Receivables rose, inventory rose, and the slowdown in Ministry of Defense payments already affected cash timing. If that persists, growth will remain real but less comfortable.

The third risk is currency and pricing. The company operates in dollars, says it has excess foreign-currency revenue over foreign-currency expense, and notes that it had no open hedging transactions as of December 31, 2025. When the dollar weakens against the shekel, shekel labor costs rise in dollar terms and hurt profitability. That matters especially in aerospace, where customers also continue applying price pressure.

The fourth risk is raw materials and supply chain. Tungsten prices rose sharply, availability declined, and the company had to diversify sourcing. In this kind of industrial model, strong growth can come with heavier inventory and longer lead-time risk precisely when demand is good.

The fifth risk is Reliance. If the 2026 plan there does not improve profitability and sales mix, the group will still be left with a U.S. arm that absorbs management attention and capital without really strengthening the thesis at the earnings line.

The sixth risk is external issues the company still cannot quantify well. U.S. tariffs on imports from Israel, especially on steel and aluminum, still do not carry a clear quantified company impact. That is not an unmanageable risk on its own, but it remains another layer of uncertainty around the U.S. activity and part of the supply chain.

Conclusions

Ashot entered 2026 from a stronger position, but also from a busier one. The defense engine is working, profitability improved, and the company has built both capacity and an equity cushion to capture the order wave. The main remaining constraint is conversion quality: how fast orders become output, how fast output becomes invoices, and how fast invoices become cash.

Current thesis in one line: Ashot’s order wave is real, but 2026 will be judged less by backlog size and more by whether the company can move that backlog through the factory without stretching working capital even further.

What changed versus the earlier read: not long ago it was easy to see Ashot mainly as a strong defense plant with aerospace optionality. 2025 shows something broader. The company is already inside an accelerated growth cycle. At the same time, it also shows that the true constraint has shifted from whether demand exists to how that demand is funded, produced, and collected.

The strongest counter-thesis: one can argue that the caution here is excessive, because the company is far from covenant pressure, holds ILS 331.1 million of unused short-term credit facilities, raised ILS 120 million of equity, and its defense activity is already proving that both volume and margin can rise together.

What could change the market view in the short to medium term: two things mainly. On the positive side, continued reports of new orders and actual deliveries from the gearbox-overhaul project could strengthen the thesis quickly. On the negative side, if customer days and receivables do not compress again, the market could start reading growth as something being financed through the balance sheet.

Why this matters: because in an industrial defense company like this, the difference between a very good story and a very good story that actually creates shareholder value runs through operational and cash discipline, not through the backlog headline.

What must happen over the next 2 to 4 quarters: the company needs to show that incremental orders are turning into production and delivery, that customers and especially the Ministry of Defense are paying on a more reasonable timetable, that aerospace stops compressing margin, and that Reliance begins to look like a strategic asset rather than an internal repair project.