Inrom Building in the First Quarter: Profit Improves as Compensation Falls, Cash Still Goes to Investment
Inrom opened 2026 with operating profit rising even as compensation income declined, a sign that the industrial core is strengthening. But operating cash flow of NIS 36.6 million was almost absorbed by capex, leases and minority dividends, while Nirlat is entering a roughly NIS 400 million new plant project.
The first quarter of Inrom Building gives the first real answer to the 2026 question: the recovery is becoming less dependent on compensation income and more dependent on the industrial business itself, but cash is still not free. Revenue rose 9% and reported operating profit rose 13.5%, while other income fell from NIS 27.0 million to NIS 16.2 million. That means operating profit before other income rose to about NIS 42.7 million, compared with about NIS 24.9 million in the parallel quarter, a better-quality change than the reported headline suggests. Still, operating cash flow of NIS 36.6 million was almost absorbed by NIS 34.2 million of investment, before the shareholder dividend approved after the balance-sheet date. Nirlat is selling more, relying less on current compensation income and moving close to operating breakeven before compensation, but it is also entering a roughly NIS 400 million new plant project over three years. That makes 2026 less of a recovery story and more of a proof year: whether better margins and new plant activation arrive quickly enough to fund dividends, capex and working capital without eroding the light balance sheet.
Reported Profit Misses the Improvement in the Core
The interesting quarterly figure is not the NIS 7.0 million increase in reported operating profit, but what happened underneath it. In the parallel quarter of 2025 the group benefited from about NIS 27.0 million of other income, mainly NIS 22.5 million of property-tax compensation for Nirlat and another NIS 4.5 million from a customs claim in Building Solutions. In the current quarter, other income fell to about NIS 16.2 million, tied to indirect compensation for Nirlat. Despite that decline, operating profit rose to NIS 58.9 million. Excluding other income, operating profit from the regular business rose by roughly 71%.
The improvement did not come from one place. Building Solutions grew sales by 6.0% and operating profit by 15.7%, even though the parallel quarter included the unusual customs-claim income. Finishing Products was the strongest segment in the quarter, with sales of NIS 105.2 million, up 16.6%, and operating profit of NIS 22.4 million, up 28.2%. Plumbing Systems is smaller, but operating profit also rose there despite a slight sales decline.
Nirlat is the part that needs the most careful read. The Paint Products segment grew sales by 8.9% to NIS 93.9 million, while reported operating profit rose only 6.9% to NIS 16.2 million. That looks like a modest improvement, but compensation recognized in the quarter fell from NIS 22.5 million to about NIS 16 million. If that compensation layer is neutralized, the segment is already close to operating breakeven, compared with an operating loss of more than NIS 7 million in the parallel quarter. This is not full normalization yet, but it is real progress on a checkpoint that remained open after the previous annual analysis.
Nirlat Relies Less on Compensation, but the New Plant Raises the Cost of Recovery
The positive part of Nirlat is that its temporary activity is no longer only an emergency workaround. The company says it has built production capacity for the main paint products at volumes close to those it had before October 7, 2023, although under a less efficient, more labor-intensive cost structure. The next step should therefore be measured not only by sales, but by whether that level of activity starts producing operating profit without indirect compensation.
The less comfortable part is that the recovery has become a larger investment commitment. On March 25, 2026, Nirlat signed an amendment to the sublease agreement with Kibbutz Nir Oz for 24 years and 11 months, and the board approved construction of a new central paint plant at Nir Oz with an estimated investment of about NIS 400 million over the next three years. The plan also includes an automated logistics center, infrastructure, storage and operating areas, and Nirlat is in advanced negotiations with the main equipment suppliers.
Property-tax compensation gives breathing room, but it does not replace normal profitability. By March 31, 2026, Nirlat had received about NIS 161 million of advances for indirect damages, and on April 15, 2026, it received another advance of about NIS 108 million. For direct damages, there is an agreement for NIS 215.6 million plus VAT beyond the NIS 100 million advance from October 2023, of which about NIS 158 million had been received by the end of March. In addition, for part of the damaged land and buildings, Nirlat stopped paying lease fees to the kibbutz from the start of 2024, and to the company's knowledge the rent is paid directly to the kibbutz by the property-tax authority. That support layer matters, but it is also why 2026 profitability still has to prove what remains after compensation and relief fade.
Investments Keep Cash Tight Despite a Strong Balance Sheet
The relevant cash frame here is cash flexibility after the quarter's actual cash uses: operating cash flow, less purchases of property and equipment, lease repayments and minority dividends paid during the period. This is not a normalized cash-generation calculation. It asks what remained after the period's actual uses of cash.
On that basis, the quarter was still tight. Operating cash flow was NIS 36.6 million, down from NIS 44.2 million in the parallel quarter, mainly because working capital consumed NIS 34.0 million. Property and equipment purchases were NIS 34.2 million, mostly tied to continued investment in group plants, especially the gypsum-board plant at Pardes Hanna. After NIS 5.9 million of lease repayments and NIS 3.5 million of dividends to non-controlling interests, the quarter had no cash surplus before shareholder dividends.
The balance sheet can absorb this for now. Net financial debt was only NIS 44.2 million at the end of March, compared with NIS 37.6 million at the end of 2025, and cash and cash equivalents were NIS 119.6 million. The bond covenants are also far away: equity attributable to owners was about NIS 1.25 billion, compared with a NIS 500 million interest-adjustment threshold and a NIS 450 million acceleration threshold, while equity to balance sheet stood at 61.15%, compared with 22.5% for interest adjustment and 20% for acceleration.
The point is not immediate credit risk. It is cash prioritization. The NIS 22.2 million dividend declared in March was paid in April, and on May 25 the board approved another NIS 19.1 million distribution, equal to half of first-quarter net profit attributable to shareholders. The dividend signals confidence, but it comes while the company is still funding the gypsum plant, starting a new paint plant, advancing a new block plant in Ashkelon with an estimated investment of about NIS 240 million, and absorbing working-capital growth as sales rise.
The Next Quarters Need to Turn Projects Into Cash
The rest of 2026 will be decided less by sales growth itself and more by three execution points. The first is Nirlat: if operating profit before compensation turns clearly positive, the market gets evidence that the recovery is becoming a more normal business. The second is the gypsum-board plant: the timing is still not perfectly clean, with one place pointing to activation in the second quarter and another to the third quarter, so the key is actual activation and sales, not the existence of the project. The third is cash: working capital and capex have to ease enough for profit and EBITDA to reach the bank account after leases and dividends.
The stock no longer carries an unusual short bet. Short interest as a percentage of float fell from about 1.8% in early January to 0.48% in mid-May, below the 0.59% sector average, so market skepticism looks less aggressive than before. That does not answer the return-on-investment question. The first quarter raised the probability that the company is entering 2026 with a stronger industrial core than it had during the recovery phase, but it also reminded investors that this improvement still has to become surplus cash after investments, leases and distributions. If that happens in the coming quarters, 2026 will look like a successful proof year. If it does not, the strong balance sheet will remain an advantage, but the dividend and investment cycle will look less like the product of excess cash and more like a capital-allocation decision running ahead of cash flow.
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