Resolution: 
You can use custom AutoCompleteAppendHelper. You can use the following code snippet: 
this.radDropDownList1.DropDownListElement.AutoCompleteAppend = new MyAutoCompleteAppendHelper(this.radDropDownList1.DropDownListElement); 

public class MyAutoCompleteAppendHelper : AutoCompleteAppendHelper
{
    public MyAutoCompleteAppendHelper(RadDropDownListElement owner) : base(owner)
    {
    }

    protected override bool DefaultCompare(Telerik.WinControls.UI.RadListDataItem item)
    {
        return item.Text.Contains(base.FindString);
    }
}

Also you can refer to forum thread http://www.telerik.com/forums/raddropdown-autocomplete-options