Given its $1.9-billion unhedged foreign currency exposure, Adani Ports SEZ (APSEZ) is caught in the recent USD\/INR crossfire. We observe that every 10% depreciation of USD\/INR: (i) impacts the company\u2019s P&L to the tune of $105\u2013110 million given positive adjustment of $40 million on revenue and negative $150 million on the principal and interest components; (ii) raises gearing to 1.13x from 1.08x currently; and (iii) does not impact cash flow (first tranche of bond repayment due in June, 2020). It remains vulnerable to forex risk and up-fronting of losses would hit P&L in the near term, but the exposure is positive up to 100 USD\/ INR considering cost savings in absence of hedging, making forex risk manageable. However, the cost of debt (currently 3.8%) would eventually rise (beyond FY20) given hardening US bond yields. That said, volume growth momentum is strong with major ports logging 6% volume growth in July\/August, which bodes well for APSEZ. All in all, maintain \u2018BUY Unhedged foreign currency exposure \u2014coming full circle? APSEZ\u2019s unhedged Dollar borrowing is largely $1.65 billion foreign currency borrowings (FCB) payable in three tranches (first one worth $650 million falls due June 2020). Since hedging involved additional cost of 5\u20135.5%, APSEZ had kept open the FCBs, thereby saving about $100 million per year. Our analysis suggests USD\/INR depreciation up to 100 is P&L-positive over a five-year period factoring in cost savings in absence of hedging. The Rupee\u2019s sharp depreciation against the greenback (USD\/INR at 72) would hit P&L by a notional loss of `8\u20139 billion (`3.8 billion recognised in Q1). Volume momentum going strong; 200MT guidance comfortable Looking at major ports\u2019 growth for July and August, APSEZ is likely to report another strong quarter with volume growth of 10%-plus. Growth in cargo is led by substantial growth in coal imports (up 34% y-o-y). Container volume growth has averaged about 6.5%. We believe APSEZ is on track to meet its FY19 guidance of 200MT cargo and has a cushion of 4\u20135MT since the resumption of operations at Adani Mundra power plant. Outlook and valuations: Outperformance to sustain We are optimistic on APSEZ\u2019s long-term prospects given its strong positioning among shipping lines and focus on sweating out assets. We maintain \u2018BUY\/SO\u2019 with a target price of `451 (20% upside), implying an exit P\/E of 19x and EV\/Ebitda of 13x. Company description: APSEZ is the seamless integration of 3 verticals consisting of Ports, Logistics and Special Economic Zone. The company has pan-India presence in ten locations with the flagship Mundra port in the Gulf of Kachchh, also India\u2019s largest commercial port.