Avrot Follow-Up: Is Paldex Still a Growth Engine or Does It Need a Full Reset?

The main article argued that Avrot’s core operations had started breathing again, but that Paldex remained the place where the story was still unproven. This follow-up isolates only that question: does Paldex still deserve to be called a growth engine, or does the evidence now require a reset in how much proof investors should demand on commercialization, utilization and order conversion?

The question matters because management is still assigning heavy strategic weight to Paldex. The company describes a local drainage market potential of ILS 170 million to ILS 200 million a year, stresses that Paldex is a differentiated product in Israel with installation advantages versus concrete, and frames Israel and Europe as parallel growth lanes. But 2025 does not look like a scaling year. It looks like a year in which the gap between the narrative and the actual pace widened.

In simple terms, Paldex did not lose its industrial logic. It lost the right to receive a growth premium without fresh proof. From here, the evidence needs to come from orders, not from product advantages alone.

The Numbers No Longer Support A Growth Story

In 2025 Avrot’s plastics segment fell to ILS 28.3 million of revenue, down from ILS 41.7 million in 2024 and ILS 45.7 million in 2023. That is a 32% decline year over year and a 38% decline versus 2023. At the same time, gross profit fell from ILS 12.6 million to ILS 6.9 million, gross margin narrowed from 30.3% to 24.4%, and operating profit before other expenses flipped from a ILS 3.9 million profit to a ILS 1.1 million loss.

That is no longer noise. It is a full retreat in the engine the company itself still describes as a main and future growth engine. Paldex also lost weight inside the group. Its share of Avrot’s revenue dropped to about 22% in 2025, from about 30% in 2024 and roughly 31% in 2023. When the growth engine shrinks in revenue, margin and mix at the same time, potential is no longer enough.

This chart sharpens what a quick read can miss. The issue is not just that revenue fell. The quality of revenue weakened as well. If Paldex were dealing only with temporary order timing, margins should have held up better. Instead, both gross margin and the operating line moved sharply lower. That already points to a commercialization and utilization problem, not just a scheduling problem.

The Bottleneck Is Commercialization, Not Product

This is exactly where the report creates the interesting contradiction. On one hand, the company still presents a product with real advantages: Paldex is the only locally manufactured plastic pipe of its type in Israel, it carries the relevant Israeli standard, the company describes meaningful transport and installation savings versus concrete pipes, and it links the product to a green shift from concrete infrastructure toward plastic infrastructure. On the other hand, by the end of 2025 the Paldex production line in Israel was still running at only about 50% utilization.

That is the core issue. If the product is differentiated, approved, familiar to the company, and backed by a clear economic and engineering narrative, then the active bottleneck no longer sits in R&D, regulation or technical validation. It sits in a much simpler question: are water corporations, infrastructure contractors and distributors actually ordering enough product to fill the line?

The report itself effectively names that bottleneck. In its list of critical success factors for the segment, the company highlights high-throughput, low-waste operations and relationships with local players in target markets. In other words, even on the company’s own framing, Paldex economics work better when the line is busy and the distribution layer is working. In 2025 neither condition received convincing proof.

Another important point is that weakness is not explained by one customer loss. The company says the plastics activity does not depend on any one customer or small group of customers whose loss would materially affect the segment. That matters because it suggests the weak year was broader than a one-customer event. The adoption pace across the market was simply too low relative to the story.

That is why 2025 looks less like a technology year and more like an adoption year. Paldex now has to prove not only that it is a good product, but that it enters tenders, converts into orders, and can sustain a sensible sales pace without leaving the line half empty.

Backlog Gives A Pulse, Not Real Visibility

At headline level, Paldex backlog does not look bad. Plastics backlog stood at ILS 14.6 million at the end of 2025 and had already risen to ILS 17.0 million near the date of the financial statements. At first glance that looks like the beginning of a recovery. The problem is that the report itself explains why that number should not be read too generously.

The company explicitly says that in the local market Paldex products are characterized by longer-term backlog, but in exports the main backlog is short term. It then adds that most sales in the segment are made not from long-dated backlog but through immediate purchases. In other words, backlog here is a pulse indicator, not insurance. It shows activity exists, but it does not provide strong multi-quarter visibility.

The chart shows the issue clearly. At year-end, almost all backlog sat in the first quarter of 2026. A short time later, it had already shifted mainly toward the second and third quarters. That is not automatically negative, but it does mean the business is moving on short-cycle orders and fast replenishment. In that structure, better backlog is still not enough to crown a growth engine. Stable conversion into revenue has to show up first.

That also explains why product advantages alone do not close the gap. If most sales arrive through immediate purchase, every soft month shows up quickly and every weak export market hits almost immediately. Paldex therefore needs less strategic storytelling and more order continuity.

Europe Softened Before The Italy Expansion Proved Itself

Precision matters here. The report does not split geographic revenue by segment, only at the group level. Even so, at the consolidated level foreign revenue fell from ILS 12.2 million in 2024 to ILS 5.9 million in 2025, close to a halving, while domestic revenue declined far less, from ILS 125.4 million to ILS 122.6 million. At the same time, in the Paldex section the company says its main foreign markets are France, Italy, Jamaica, Reunion and New Zealand, and that global sales in 2025 declined because of exchange-rate changes.

The analytical implication is straightforward. The weakness of 2025 does not look like a broad local-demand problem across the whole group. It looks much more like erosion in the overseas layer, exactly where Paldex was supposed to expand. That does not mean all of the foreign decline came from Paldex, and the report does not offer that split. But it does mean the European and international leg, which the company repeatedly presents as part of the growth thesis, did not deliver the proof it needed to deliver in 2025.

Against that backdrop stands the Italy move. On one side, the company owns 50% of Paladeri, which manufactures and markets Paldex pipes and applications in Italy, and 50% of Paldex Technologies, which holds land intended for a plant in Italy. On the other side, in the disclosure on the agreement with partner BMB, the company says the land has already been bought, about EUR 1.1 million has been invested in building a new machine for Paldex products, but as of the report date work had not yet begun on adapting the site for the company’s activity. The agreement itself had still not been signed, even though the parties had already started executing the project.

This is exactly the sort of gap that requires a reset in the proof threshold. There is land, there is a machine, there is an ambition to sell directly across European markets, but there is still no operating site that proves the additional capacity is actually tied to demand. Europe, in 2025, still looks more like early capital commitment than like a mature commercial engine.

What Has To Happen Before This Can Be Called A Growth Engine Again

To give Paldex the growth-engine label back, Avrot needs to show not another narrative over the next few quarters, but a sequence of execution.

• Local-market penetration has to show up in wins and orders, not only in talk about market potential and replacing concrete.
• Utilization has to move clearly above the 50% area, because a growth engine is not supposed to run half empty.
• The overseas layer has to show a real recovery in orders and revenue after the sharp 2025 decline.
• The Italy move has to progress from land and machinery into an adapted site and commercial activity visible in numbers.

If two or three of those things happen together, one could argue that 2025 was a painful but temporary transition year. If not, then Paldex should still be viewed as a growth option, not as a growth engine.

Conclusion

Paldex still carries a product story that sounds compelling: installation advantage, certification, a unique local manufacturing position, a France and Italy platform, and a local market the company itself sees as large. But 2025 says the market has not yet bought that story at a pace that justifies the strategic weight management continues to assign to it.

This is not a collapse of the technology thesis. It is a collapse of the assumption that commercialization is already on track. When segment revenue falls 32%, operating profit turns into a loss, utilization stays around 50%, group-level overseas sales weaken sharply, and the Italy move is still not operational, the right read is no longer “a growth engine hit by a temporary setback.” It is “a growth engine that now has to prove itself again.”

The strongest counter-thesis still exists. It is possible that 2025 was simply an unusually weak year because of FX, delayed projects and a softer export market, while the product itself, the local standard, and the European platform can still drive a relatively fast rebound once order pace returns. But until that shows up in the numbers, Paldex remains mainly an option on future growth rather than a proven source of current growth.