Indian auto makers have been battling higher prices of raw-materials and firm interest rates that have slowed demand, particularly for commercial vehicles.
Mahindra said a firmer rupee also hit export earnings.
Mahindra, which makes the Logan sedan in a joint venture with France's Renault, said net profit fell to 1.91 billion rupees in the fiscal first quarter to end-June from 2.04 billion a year ago.
Net sales rose to 26.13 billion rupees from 22.36 billion.
That compared with a Reuters poll forecast of a net profit of 2.09 billion rupees on sales of 25.44 billion rupees.
Its operating margin, a key gauge of profitability, fell to 10.6 percent from 11.3 percent a year earlier.
Mahindra's full-year net profit is forecast to rise 4 percent to 10.49 billion rupees.