Inter Industries 2025: Service Holds Up Earnings, Cash Still Depends on Banks

Getting To Know The Company

Inter Industries is not just another electrical-equipment supplier. It is an Israeli energy-infrastructure and electro-mechanical group operating in two very different economic worlds. One is projects: power stations, substations, electrical systems, electro-mechanical projects and system-heavy civil engineering. The other is trade and services: maintenance, facility and infrastructure management, service for electrical and HVAC systems, and distribution of technical products to installers and institutional customers. In 2025 the revenue split between those worlds was almost balanced, but the profit split was not. Projects generated NIS 385.3 million, about 54% of group activity, while trade and services generated NIS 331.4 million, about 46%. What can mislead a first read is that revenue of more than NIS 716 million looks like a scale story. What really matters is which part of the group earns money, which part absorbs cash, and where the current bottleneck sits.

What is actually working now? Trade and services. It is no longer a nice support layer around the project business. It has become the group’s economic anchor. In 2025 the segment produced operating profit of NIS 18.2 million versus NIS 13.4 million a year earlier, and revenue rose to NIS 331.4 million. Within that segment, service and maintenance alone reached NIS 331.4 million, or about 46% of group revenue, and roughly 70% of contracts are recurring and renewable. That is a real operating base, not an accounting illusion.

What remains unresolved? Two things. The first is projects, which still ended the year with an operating loss of NIS 17.8 million, even if that was better than the NIS 34.6 million loss in 2024. The second is cash. Operating cash flow stayed negative, short-term bank debt increased, and after the balance-sheet date the company needed waiver letters from three banks because it had failed part of its financial covenants. That is why 2025 is not a breakout year. It is a transition into a proof year.

There is also a practical screen that should be stated early. As of April 6, 2026 the stock traded at 263.1 agorot with daily turnover of only about NIS 34 thousand. Based on the post-option-exercise share count, that implies a market value of roughly NIS 123.5 million by direct calculation. This is a small-cap, thinly traded stock. Even if the operating story improves, market digestion can remain slow, sharp, and inefficient.

The Economic Map

Main Strengths Versus Main Yellow Flags

First strength: breadth of capabilities. Inter operates across engineering, installation, service, maintenance, switchboard manufacturing, high voltage, HVAC, shielding and charging, which gives it a wider offering than many narrower competitors.

Second strength: a recurring service layer. Konstantin, where the group owns 70%, adds nationwide coverage, a large service book, and recurring revenue that stabilizes the story.

Third strength: access to institutional and defense customers. Clearances, licenses and experience create a more meaningful entry barrier than in the simpler distribution activities.

First yellow flag: project margins are still not healthy. The largest revenue engine remains the weakest profit engine.

Second yellow flag: cash has not caught up with the P&L improvement. That is the core bottleneck today.

Third yellow flag: the capital structure is still stretched. The bank waivers say the lenders do not yet see a clean story.

Events And Triggers

The Pre-Cycle Starting Point

The real starting point is the prior year. In February 2024 the investment transaction with the new control group was completed. It injected NIS 38 million in exchange for 15.51 million shares and 6.33 million warrants, while Inter also sold its stakes in Inter G and Hilerion to the former controlling shareholder. This is not just a historical footnote. It changed the ownership structure, the capital base, and the question of what exactly remains inside the core group. So 2025 should be read as a year in which the new control structure is already being tested on the domestic operating platform, not on a broader asset mix.

Two Contracts That Support Backlog, But Do Not Solve Quality By Themselves

In February 2025 a subsidiary signed a subcontract for the design, supply and construction of a high-voltage substation as part of a ground-mounted solar-plus-storage project in Israel, with estimated consideration of about NIS 72 million and a 27-month execution period. Later that month another subsidiary signed an electro-mechanical works agreement with estimated consideration of about NIS 83 million and a 42-month duration. These are meaningful numbers relative to the company’s market value and they help explain why backlog remains large despite a weak year in projects.

The problem is that backlog is not the same thing as profit. The company itself says the projects loss in 2025 mainly came from several projects where execution costs increased because project duration was extended. That means the new contracts are a positive trigger only if they enter the books with better execution discipline. If they also drag, backlog simply extends the problem.

After The Balance-Sheet Date: NIS 9.5 Million Of Cash At The Cost Of Dilution

On February 4, 2026 the controlling shareholders exercised 3.17 million warrants into ordinary shares at an exercise price of NIS 3 per warrant, and the company received about NIS 9.5 million. All remaining unexercised warrants expired on February 14, 2026. This matters for two reasons. On the one hand, the company received an additional funding bridge without taking new bank debt. On the other hand, this is not proof of internal cash generation. It is supplemental equity funding, and in practice the share count rose by about 7.2% versus the year-end 2025 base.

Management Is Already Defining The 2026 Test

Management’s message for the coming year is relatively clear: improve profitability and expand backlog. That framing matters because it tells you what kind of year lies ahead. This is a proof year. Not a growth-at-any-cost year, not a dividend year, and not a capital-allocation expansion year. If 2026 does not deliver both better profitability and better cash conversion, it will be hard to present 2025 as a full turning point.

Efficiency, Profitability And Competition

Services Did The Heavy Lifting

The core story of 2025 is that the group improved consolidated profitability sharply without posting unusual revenue growth. Revenue rose 3.6% to NIS 716.7 million, but gross profit jumped 47.2% to NIS 51.9 million and the gross margin improved to 7.2% from 5.1% in 2024. At the same time, selling, general and administrative expenses fell to NIS 51.1 million from NIS 57.7 million. That combination brought the group close to operating break-even: operating profit of NIS 414 thousand instead of an operating loss of NIS 21.2 million.

The main source of that repair is not a broad-based group-wide recovery. It is one clear engine: trade and services. Segment revenue rose to NIS 331.4 million from NIS 297.0 million, and operating profit increased to NIS 18.2 million from NIS 13.4 million. The company itself links the increase mainly to maintenance services. That matters because maintenance revenue tends to come with more recurring customer relationships, a higher share of renewable contracts, and less dependence on the timing of an individual project.

Projects Improved, But They Still Have Not Crossed The Line

Projects remain the reason Inter still cannot present a clean story. Segment revenue fell to NIS 385.3 million from NIS 394.3 million, and operating profit remained negative at minus NIS 17.8 million. Yes, that is better than minus NIS 34.6 million in 2024. But it is still not profitability. The company explains that the loss mainly came from several projects where execution costs rose because project duration was extended. In other words, the issue is not demand. It is execution quality, pricing discipline, and the ability to finish jobs on time.

The more interesting datapoint sits deeper in the disclosure on completed large projects. In integrated projects, the cumulative gross margin on projects completed in 2025 was 6.0%. In electrical systems for industry and energy infrastructure, cumulative gross margin was only 1.46%. That is a strong clue that the problem is not simply that projects are “not yet fully back.” It is that part of the infrastructure core is still operating on very thin margins, where even a small timing or cost miss can erase the economics.

The Fourth Quarter Looked Better, But Not Good Enough Yet

The fourth quarter was the best quarter of the year from an operating standpoint. Revenue rose to NIS 192.0 million from NIS 171.8 million in the comparable quarter. Gross profit was NIS 13.6 million versus a gross loss of NIS 3.4 million. Operating profit turned slightly positive at NIS 333 thousand versus an operating loss of NIS 16.7 million in the comparable period. This is exactly the kind of quarter that can change the tone around the company.

But one quarter should not be turned into a full narrative. Even in the fourth quarter, net finance expense was still NIS 2.7 million, so the bottom line remained negative. Put simply, operations are showing recovery signals, but the capital structure is still taking that recovery away.

Competition, Pricing And Margin Quality

The company describes a highly competitive environment across most of its activities: Electra, Afcon, Elmor, Siemens, Nextcom, Schneider and other players. This is not a monopoly story. The advantage comes from the combination of capabilities, clearances, geographic coverage and service. On the other hand, in tenders and long-duration projects that still does not guarantee margin protection.

The report does not suggest that 2025 margins were helped by unusual scarcity or urgent supply conditions that allowed the company to charge unusually high prices. Quite the opposite: the company says most raw materials are available immediately. That is an important clue. The 2025 margin improvement does not look like a peak year driven by supply dislocation. It looks more like a mix shift toward services, tighter cost control, and partial execution repair. That is better news from a quality standpoint, but still not enough to erase project risk.

Cash Flow, Debt And Capital Structure

Cash Flow: Earnings Still Have Not Reached The Bank Account

This is where the real bottleneck sits. To avoid flattering the story, 2025 should be read through an all-in cash flexibility lens, meaning how much cash is really left after actual uses of cash. On that lens the picture is still not clean.

Cash flow from operations was negative NIS 2.8 million. That is a major improvement versus negative NIS 26.4 million in 2024, but it is still not on the right side of zero. The main reason was working capital: customers and accrued revenue increased by NIS 22.4 million. The company did release NIS 5.2 million from inventory and received a NIS 4.8 million benefit from other payables, but that was not enough to offset the receivables drag.

A deeper look shows that even in the trade and services segment, which looks excellent in the P&L, credit terms have stretched. Average customer credit in the segment rose to about 120 days from 104 days in 2024, and average customer credit exposure rose to NIS 107 million from NIS 86 million. Supplier credit also stretched, to about 123 days from 112 days, and average supplier credit rose to NIS 69 million from NIS 54 million. That is the real economic message: the growth of the service engine is not free. It requires more working capital.

How Cash Still Rose

Despite negative operating cash flow, cash and cash equivalents increased by NIS 10.5 million. That sounds good until you ask what built that increase. Investing activity contributed NIS 8.1 million, mainly due to the release of short-term bank deposits amounting to NIS 10.0 million. Financing activity contributed another NIS 5.1 million, mainly from a net increase of NIS 25.3 million in short-term bank credit and other short-term financing. Against that, the company paid NIS 18.5 million in lease liabilities and NIS 4.8 million in long-term loan repayments.

In other words, the increase in cash did not come from an operating model that is already funding itself comfortably. It came from releasing trapped liquidity and increasing short-term debt. That is a crucial distinction.

Short-Term Debt, Covenants, And Shrinking Headroom

Bank credit and current maturities of loans rose to NIS 60.0 million from NIS 36.5 million at the end of 2024. Equity fell to NIS 103.4 million from NIS 117.2 million, and the equity ratio slipped to about 22% of the balance sheet from about 25% a year earlier. This is exactly the setting in which lenders stop looking only at the income statement and start looking at the gap between reported numbers and real flexibility.

And that is exactly what happened. Across three separate bank facilities, with balances of about NIS 24.8 million, NIS 16.5 million and NIS 18.0 million, the company had undertaken, among other things, to maintain tangible equity of at least 17% of tangible balance sheet, tangible equity of at least NIS 60 million, positive operating profit, and free cash of at least NIS 15 million. As of December 31, 2025 the company did not comply with part of those covenants. Only after the balance-sheet date did it receive waiver letters from all three banks, and one of them also temporarily relaxed the tangible-equity ratio threshold to 15%.

This is not a footnote. Waivers are an external signal that the story is still unfinished. Yes, the banks did not demand immediate repayment. But the market should understand that the group crossed year-end through a financing bridge, not through a relaxed capital structure.

Even The Konstantin Value Is Not Fully “Free” To Common Shareholders

There is another layer worth surfacing. Konstantin is now the key operating engine, but common shareholders do not fully own the economic upside without friction. Inter owns 70% of Konstantin, there is a CALL/PUT mechanism on the remaining 30%, and the balance sheet carries a NIS 21.8 million liability for the acquisition of subsidiaries. On top of that, the company states that a 1% change in interest rates reduces annual finance expense by about NIS 0.5 million because of the discounting mechanics on that liability.

That matters because it separates “the group has a strong service asset” from “the value of that asset already sits cleanly with listed-equity holders.” It does not.

Outlook

First finding: Inter no longer looks like a group where every unit destroys value equally. Services and maintenance have become the real economic center of gravity.

Second finding: the large backlog is not enough on its own. In projects, margin quality matters more than volume.

Third finding: the improvement in cash during 2025 was not organic. Anyone looking only at the year-end cash balance misses the deposit release and the increase in short-term bank credit.

Fourth finding: the NIS 9.5 million option exercise in February 2026 helps the bridge period, but it does not solve the core issue of converting operating improvement into self-generated cash.

Fifth finding: 2026 looks like a classic proof year. Management itself says the focus is profitability and backlog growth, and the banks are effectively demanding to see that in the numbers.

Backlog Gives A Base, But The Quality Is Uneven

Projects backlog stood at about NIS 426.2 million at the end of 2025, of which NIS 316.6 million is expected for 2026 and NIS 109.6 million for 2027 and later. Near the publication date that backlog had already fallen to NIS 386.3 million, excluding unchanged joint-venture backlog. That means backlog is moving, but also that the projects story still depends on healthy conversion, not on an endless reservoir of work.

Trade and services backlog looks more comfortable: NIS 580.8 million at year-end 2025, of which NIS 209.3 million is expected for 2026 and NIS 371.5 million for 2027 and beyond. Near the publication date the backlog was still NIS 574.4 million. The important point here is not just the amount but the structure. Most orders are long-term, usually for more than one year, and typically include extension options. That is a higher-quality base than the project backlog.

By simply adding the two disclosed segment backlogs, you get a figure of just over NIS 1.0 billion at year-end 2025, and about NIS 960.7 million near the publication date. That is a strong number relative to annual revenue. But again, the right question is which backlog arrives with margin, and which backlog arrives with execution risk.

What Has To Happen For The Read To Improve

The first thing that has to happen is a continued streak of positive operating profit. One better fourth quarter is not enough. The company needs another two to four quarters in which projects stop wiping out the contribution from services.

The second is improvement in operating cash flow. Without that, every P&L improvement will still look incomplete. Receivables and accrued revenue already reached NIS 282.6 million, and the board report presents receivables, other debtors and taxes receivable at NIS 305.8 million. If that line does not stabilize, cash will keep trailing earnings.

The third is a return to a position where the company no longer depends on covenant waivers. The next covenant test will be against the December 31, 2026 financial statements. In other words, the whole year is already marked by the banking system as a proof period.

The fourth is the quality of growth inside services. If that segment keeps growing through renewable contracts without another stretch in customer credit, it can become a true stabilizing anchor. If growth there continues to arrive with more working capital and more customer financing, it will remain a profit engine but not a cash engine.

Risks

Material Customer Concentration

The Ministry of Defense accounted for about NIS 174 million of group revenue in 2025, versus about NIS 156 million in 2024. That is more than 20% of group revenue and comes from multiple different engagements. The customer identity matters here. The Ministry of Defense is large, stable and hard to access, but it is also a tender-driven buyer with negotiating power, its own timelines, and the ability to shape commercial terms.

Project Execution Risk

The company itself links the 2025 projects loss to longer project duration and higher execution costs. It also highlights exposure to raw-material costs, delay-related liabilities, and labor shortages. This is not a theoretical risk. It is exactly what already hurt the business in 2025.

Financing And Covenants

This is the main group-level risk. Short-term debt is higher, equity is lower, operating cash flow is still negative, and covenant breaches were only neutralized by waivers after year-end. Even if 2026 starts well, the company enters it with a clear burden of proof from its lenders.

FX And Rates

The group states that it has obligations to foreign suppliers in US dollars and euros while most revenue is denominated in shekels. In addition, it has around NIS 60 million of shekel bank obligations at floating rates, and each 1% increase in the Bank of Israel rate would increase annual finance expense by about NIS 0.6 million. So even if operations improve, an unfavorable rate environment can slow the repair in finance costs.

Legal Proceedings

As is common in contracting and infrastructure, the company discloses a range of claims, arbitrations and counterclaims around projects, some of them in the millions of shekels, and in several cases it says the risk cannot yet be estimated. That is not necessarily unusual for the sector, but it is a reminder that part of project economics gets tested outside the income statement as well.

Conclusions

Inter exits 2025 with a better story than it had a year ago, but not yet a clean one. Services are now building a real earnings base, the fourth quarter showed that positive operating profit is possible again, and backlog remains large. On the other side, projects are still loss-making, working capital keeps absorbing cash, and the banks have already demanded proof through waiver letters. In the short to medium term, the market is likely to focus less on headline backlog and more on whether Inter can sustain positive operating profit and improve cash flow without another turn of dependence on short-term credit.

Current thesis: the services segment is now stabilizing the group, but until projects cross into profit and cash flow turns positive, Inter remains a real improvement story that is still incomplete.

What has changed in the company read? Inter is no longer just a project contractor defined by volatility. It now has a large, recurring and profitable service layer, mainly through Konstantin. What has not changed enough? That layer still does not fully cover the group’s cash and financing needs on its own.

Counter-thesis: 2025 already marks a full turning point. The projects loss was almost cut in half, services are compounding, combined backlog still exceeds NIS 1 billion by simple segment addition, finance expense has come down, and the February 2026 warrant exercise added more oxygen. On that read, what looks like financing tension today is just the residue of a difficult year, not a structural issue.

That counter-thesis gets stronger if the coming reports show three things together: a sustained positive operating result, stabilization or decline in receivables, and lower dependence on short-term bank funding. It weakens if projects slip back into execution overruns, if services continue growing on longer customer credit, or if year-end 2026 again requires covenant waivers.

Why this matters: with Inter, the question is no longer whether there is activity, backlog and capability. There is. The question is whether the service base can stabilize the cash engine, not just the income statement.