Inrom Building: Compensation Nearly Covers Nirlat's Profit, and the New Plant Adds Heavy Cost

Nirlat no longer looks like a damaged operation living only on compensation, but it has not yet proven normal profitability either. The first quarter narrows the issue to one clean test: Paint Products revenue rose to NIS 93.9 million, reported segment operating profit was NIS 16.2 million, and about NIS 16 million of other income was booked from property-tax compensation related to Nirlat. Before that compensation layer, the operation is closer to operating breakeven than to full normalized profit. That is still progress versus 2025, because sales momentum is continuing and the temporary alternatives have restored core product capacity to levels close to those that existed before October 7, 2023. The same progress now carries a new price: Inrom Building has approved a new central plant in Nir Oz, with estimated investment of about NIS 400 million over three years. From here, the question is whether Nirlat's recovery becomes an industrial return story, rather than a long investment cycle that replaces a burned plant with a more expensive one. The proof points are operating profit without compensation, the timing of property-tax payments versus CAPEX, and progress with equipment suppliers without a material cost or schedule overrun.

Profit Before Compensation Is Now Close to Breakeven

The previous discussion of Nirlat's recovery and compensation left one open question: how much of the Paint Products profit already comes from normal business activity, and how much still comes from the compensation file. The first quarter gives a better answer, but not a complete one. Nirlat is selling more and segment profit is higher, yet the gap between reported profit and compensation booked in the quarter is still too narrow to call this a full return to normal margins.

This is not a formal company metric. It is a quality-of-earnings check: if Paint Products reports NIS 16.2 million of operating profit, while about NIS 16 million of property-tax compensation income is booked for Nirlat in the same quarter, then the activity before that layer is around breakeven. That is a real improvement versus 2025, when other income in the Paint Products segment was still larger than reported operating profit. It is not yet enough to say that Nirlat has returned to a normal profit structure.

The positive point is that segment revenue keeps rising, and the company attributes most of the increase to volume. That is better than a one-off price effect, because it says the market is buying Nirlat products again at a higher pace. But in building and paint products, volume alone is not enough. Profitability depends on utilization, cost structure, labor, logistics, and efficient production. The company itself says the temporary alternatives enable ongoing activity, but with a less efficient and more labor-intensive cost structure. Sales already point to recovery, while profit before compensation still points to a transition period.

Compensation Buys Time, Not Normal Profitability

Property-tax compensation is part of Nirlat's economics, but it is not a substitute for a profitability test. In the first quarter, about NIS 16 million of indirect-damage compensation was booked as other income, after about NIS 216 million of other income was booked during 2023 to 2025 for indirect damages. By March 31, 2026, Nirlat had received advances of about NIS 161 million against indirect-damage compensation, and on April 15, 2026 it received another advance of about NIS 108 million. That is important cash during a recovery period, but it also shows that the business is still supported by an exceptional mechanism.

The direct-damage side also requires separation between compensation and normal economics. The August 2025 agreement states that the property-tax authority will pay Nirlat an additional NIS 215.6 million plus VAT on top of a NIS 100 million advance paid in October 2023, for damage to inventory, equipment and buildings. As of March 31, 2026, Nirlat had received about NIS 158 million under the agreement, with the balance to be paid according to its terms. These amounts help fund the repair of the damaged asset, but they do not prove that the rebuilt operation will generate the same margin after compensation fades.

There is also an operating relief worth keeping in view. Since January 1, 2024, Nirlat has stopped paying lease fees to Kibbutz Nir Oz for the damaged portion, except for land that was not damaged and is still in use, and according to the company's knowledge those lease fees are paid directly to the kibbutz by the property-tax authority. That makes sense during a war-damage period, but it is another sign that the current cost base is not a clean comparison base. Once the activity shifts to a new plant, the real question will be what remains after lease fees, depreciation, labor, logistics and maintenance under more normal conditions.

A NIS 400 Million Plant Raises the Bar

The approved new Nir Oz plant changes the type of question around Nirlat. Until now, the main issue was whether the company could resume production and sales after severe damage. It is now also a return-on-investment question: a new central paint-products plant, an automated logistics center, new infrastructure, storage and operating areas, with estimated investment of about NIS 400 million over three years.

The amendment to the sublease agreement with Kibbutz Nir Oz was signed on March 25, 2026 for 24 years and 11 months, on terms similar to the original agreement. That gives the project a long property base, but it does not complete execution. Completion is subject to permits, approvals and third-party agreements, and as of the report date Nirlat is in advanced negotiations with the main equipment suppliers for the plant and logistics center. In business terms: the project has moved from intention to commitment, but not yet to a stage where cost, timetable and profit contribution are proven.

The investment scale matters because it changes the price of success. A new automated plant can restore efficiency that was lost in the temporary structure, reduce labor dependence, and improve logistics and utilization. The other side is that if higher volume and profit remain close to breakeven before compensation, a NIS 400 million plant could turn the recovery into a heavy capital project before normalized profitability has been proven. The direct property-tax compensation reduces part of the burden, but it does not remove the timing question: when cash comes in, when investment goes out, and when the plant starts producing profit that is not dependent on compensation.

What Will Decide Nirlat's Recovery

The current read is positive, but not clean: Nirlat is selling at a better pace and is approaching breakeven before property-tax compensation, yet it has not moved into normal profitability that can stand without compensation and recovery relief. Over the next few quarters, the Paint Products segment needs to show positive operating profit as indirect compensation declines, while the Nir Oz project needs to advance through equipment suppliers, permits and timetable without becoming too heavy a capital burden. The counter-thesis is that the new plant will solve the temporary efficiency problem and turn compensation into smart bridge funding for a better asset, rather than artificial support for profit. To make that more than a good sentence, Nirlat needs to show that profit before compensation grows faster than the new fixed-cost base, and that about NIS 400 million of investment translates into better industrial margins, not only restored capacity.