Kardan Nadlan: How Much of El-Har's Backlog Is Real Diversification and How Much Stays Inside the Group?
At first glance, El-Har's roughly NIS 3.766 billion backlog looks like a strong diversification engine, but roughly NIS 1.269 billion of it is tied to five Kardan Nadlan projects. That does not negate the strength of the execution arm, but it does mean a meaningful part of the backlog still depends on the same residential economics, timing risk, and execution pressure inside the group.
What This Follow-Up Is Isolating
The main article argued that El-Har held up the 2025 results while residential development, equity, and cash flow still had not closed the gap. This follow-up isolates one narrower question: how much of El-Har's backlog really opens an external demand base for Kardan Nadlan, and how much simply keeps part of the risk inside the same group.
The short answer is two-sided. This is not a purely internal backlog. Out of roughly NIS 3.766 billion at year-end 2025, about NIS 2.497 billion is not tied to Kardan Nadlan's own projects. That is a large third-party book. But it is not full diversification either. Roughly NIS 1.269 billion, about 33.7% of the backlog, is tied to five projects El-Har executes for the company itself. In other words, one-third of the execution arm's forward visibility still rests on the same group residential engine that has already proven sensitive to timing, execution costs, labor availability, and project progress.
| Layer | Amount | Weight | What It Means |
|---|---|---|---|
| El-Har backlog at year-end 2025 | 3,765.9 | 100% | The headline number behind the execution arm |
| Backlog tied to five Kardan Nadlan projects | 1,269.0 | 33.7% | Work still tied to the group's own project economics |
| Implied third-party backlog | 2,496.9 | 66.3% | A real external book of work |
| External execution revenue in 2025 | 347.3 | 84.9% of execution-segment revenue | The revenue that stays in the consolidated P&L |
| Intersegment execution revenue in 2025 | 61.7 | 15.1% of execution-segment revenue | Internal work already flowing through El-Har, but not full external diversification |
How Much of the Backlog Is Truly External
At first glance, the NIS 3.766 billion headline can make El-Har look like a broadly diversified execution platform driven mainly by external clients. The numbers give a more precise picture: once work for group projects is stripped out, the third-party backlog still stands at roughly NIS 2.497 billion. That is substantial. Operationally, it means El-Har is no longer dependent only on internal work.
But it is important not to confuse the existence of external clients with full risk diversification. The fact that about one-third of the backlog sits in five group projects means the link between El-Har and the residential-development engine was not severed. It was moved one layer down. When development is delayed, when project starts are pushed out, or when margins get squeezed, part of that pressure still stays inside the house and reaches the execution arm as well.
That is the point the headline figure can hide. El-Har does open a wider external market for Kardan Nadlan, but it does not turn the group into a pure third-party contractor. A meaningful part of forward visibility still depends on Kardan Nadlan's own residential projects moving from planning and construction into delivery and full economic recognition.
Where Earnings Quality Gets Blurry
In the consolidated income statement, 2025 execution revenue is presented at NIS 347.3 million. That is external revenue only. In the segment note, the picture is broader: the execution segment recorded total revenue of roughly NIS 409.1 million, of which about NIS 61.7 million was intersegment revenue. At the same time, segment profit rose to NIS 28.5 million from NIS 4.3 million in 2024.
That does not mean El-Har's profit is somehow fake. That is not the point. The point is different: part of the activity running through El-Har is group activity, and that is not the same thing as full business diversification against external demand. The note explicitly says the segment adjustments include the elimination or release of intercompany profits on projects El-Har executes for the company. So at the internal management level, the execution arm is clearly generating volume and margin, but from the common-shareholder perspective not every shekel of that activity is an independent outside engine.
Put simply, the intra-group work does not bring the group a new customer. It mainly brings the execution process in-house. That is why El-Har's earnings quality has to be read through two separate lenses: how much true third-party activity it brings in, and how much of its improvement reflects the group's decision to self-execute a larger share of its own pipeline.
The gap between those two layers matters. In the year-end backlog, the intra-group share is about 33.7%. In 2025 execution-segment revenue, the intersegment share is only about 15.1%. That tells us El-Har already demonstrated a solid external revenue base in 2025, but the book of work ahead still carries a meaningful internal component. Diversification improved, but it is not yet clean enough to disconnect the execution arm from the residential cycle.
Why the Risk Still Stays Inside the Group
If the intra-group portion were nearly risk-free, one could argue the issue is mostly accounting. That is not what the filing describes. The broader environment and risk sections point to a continuing industry disruption: shortages of skilled foreign workers, subcontractors struggling to return to normal output, extra payments to subcontractors and manpower corporations, rising project costs, delivery delays, and postponements in project starts. The filing explicitly ties that pressure to both execution works and residential construction.
The operating review of El-Har is also clear that this is not a contractor with full cost protection. The company says its protection against raw-material inflation is only partial, because price increases are not fully reflected in the construction-input index. It also says there is no full protection against subcontractor exposure, only partial mitigation through early procurement of some inputs and partial indexation. The filing further notes that some subcontractors have been asking for more indexation in recent years, which could increase that exposure if the trend continues.
Then there is the labor layer. A substantial part of El-Har's project workforce is employed through manpower corporations, and El-Har also works with subcontractors that themselves employ foreign workers. That means the intra-group portion of the backlog is not safe money just because it stays within the family. It still carries the same execution risk, the same labor bottleneck, and the same margin pressure. The work stays inside the group, but so does the risk. That is the distinction between real diversification and internal integration.
What This Means From Here
El-Har does provide diversification, but only partial diversification. About two-thirds of the backlog, roughly NIS 2.497 billion, comes from work not classified as Kardan Nadlan's own projects. That is too large to dismiss. At the same time, about one-third of the backlog is tied to five group projects, and 2025 already showed NIS 61.7 million of intersegment revenue inside the execution arm. Anyone reading El-Har's backlog as a clean external shield against weakness in development is only reading half the picture.
The more accurate reading is that El-Har is doing two things at once. On one side, it adds a real external book of work and spreads part of the activity beyond Kardan Nadlan's own development pipeline. On the other, it also acts as an internal absorption arm that keeps the group's own projects moving. That improves visibility and execution control, but it does not detach earnings quality from the success of the residential projects themselves.
In the near term, three checkpoints will determine whether backlog quality is really improving: the share of third-party work in actual execution revenue, the ability to hold margins despite labor shortages and subcontractor pressure, and the pace at which the group projects El-Har is building move from engineering progress into consolidated profit and cash.
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